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China to pull back Yuan from 3-year high

04 Jun 2021

A stronger yuan makes Chinese goods relatively more expensive to buyers overseas and has spurred concerns over the competitiveness of Chinese exports – a major contributor to national economic growth. The Chinese yuan traded little changed against the US dollar Thursday after the People’s Bank of China (PBOC) set the yuan’s daily midpoint at 6.3811 versus the greenback. That marked the second straight day of weaker fixings, reversing six straight trading days of stronger fixings since 24 May, according to data from Wind Information. The PBOC has tried to allow the market to play a greater role in determining the yuan’s exchange rate. But the Central Bank retains some control through daily midpoint fixings against the US dollar, allowing the yuan to move 2% higher or lower from that level. The weaker fix followed the Central Bank’s announcement late Monday that beginning 15 June, financial institutions must increase the ratio of their foreign exchange deposits by two percentage points – to 7% from 5% currently. The hike forces banks to retain more of their foreign currency holdings, reducing the amount that could be used to influence foreign exchange rates. It is the first such hike in 14 years since the previous change in May 2007, before the financial crisis, economists pointed out. They estimate the move will reduce the amount of foreign currency available for long-term trading by $ 20 billion. (CNBC)


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