Global: China’s Central Bank Increases Oversight on Large Dollar Purchases Amid Yuan Depreciation Pressure

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China’s central bank is intensifying its oversight of large dollar purchases by domestic companies, as the Chinese currency faces growing depreciation pressure. Three sources with direct knowledge of the matter revealed this development on Monday.

According to the sources, companies seeking to purchase $50 million or more will now require approval from the People’s Bank of China (PBOC). Over the weekend, the PBOC held a meeting with several commercial banks to address this issue.

One of the sources commented, “The approval process will be extended,” highlighting the severity of the recent yuan depreciation. Many experts now anticipate the yuan’s value falling beyond 7.5 per dollar.

The central bank has reportedly cautioned some lenders about their significant dollar purchases on behalf of corporate clients. This directive comes as the Chinese yuan has already depreciated by approximately 6% against the U.S. dollar this year, reaching levels last seen during the 2008 global financial crisis.

When contacted by Reuters, the PBOC did not immediately provide comments on its plans to heighten scrutiny of dollar purchases.

In recent weeks, China has increased efforts to slow the yuan’s decline by consistently setting stronger-than-expected midpoint fixings. Additionally, it has announced measures to boost the supply of dollars by reducing the amount of foreign exchange reserves banks must maintain.

Last month, sources informed Reuters that Chinese currency regulators had requested some banks to curtail or postpone their U.S. dollar purchases to stem the yuan’s depreciation. Meanwhile, state-owned banks have been observed selling dollars in both domestic and offshore markets while absorbing yuan liquidity in offshore foreign exchange markets to increase the cost of betting against the Chinese currency.

On Monday, China’s foreign exchange self-regulatory body affirmed its commitment to prevent the yuan from overshooting its appropriate value. It pledged to take action when necessary to address one-sided and pro-cyclical activities related to the currency, as outlined in a statement published by the PBOC.

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