The People’s Bank of China has strengthened the defense of the yuan and the domestic foreign exchange market.
Media reports claim that Beijing is currently taking measures in the financial environment in preparation for the return of Donald Trump to the White House this month. It is expected that Mr. Trump will bring greater headwinds for trade and exchange rates.
On Monday, January 13, the People’s Bank of China and the State Administration of Foreign Exchange announced an increase in the macroprudential adjustment parameter for frost-border financing of enterprises and financial institutions from 1.5 to 7.5.
Cross-border financing involves the provision of funding for business activities that are carried out outside the country. The adjustment parameter defines the upper limit of the allowed amount of such financing.
Experts said that the mentioned move, which comes ahead of Donald Trump’s inauguration next week, means that companies will be able to borrow more foreign debt. They also described the relevant decision as a measure taken by Beijing for precautionary reasons due to the fact that the onshore and offshore yuan exchange rate is rapidly depreciating against the US dollar.
Zhu Tian, an economics professor at the China Europe International Business School in Shanghai, said that the mentioned move could ease the pressure of depression to some extent and increase overseas financing for enterprises. The expert noted that if more than US dollars will flow as a result of this move, the yuan exchange rate will stabilize.
In recent years, China’s national currency has repeatedly shown falls to lows against the US dollar. The yuan is declining under the influence of factors such as cutting interest rates and the expectation that Donald Trump will raise tariffs on imported goods. It is worth noting that Mr. Trump has repeatedly stated the mentioned intention.
As we have reported earlier, China’s Trade Surplus Reaches Record.
