Has China sold dollars to support yuan?

Simon Rabinovitch and Lu Jianxin
Reuters
Thursday, March 19, 2009

BEIJING (Reuters) – Long accused by critics in the West of keeping its exchange rate undervalued, China may now be tip-toeing onto the other side of the currency trade to sell dollars and ward off depreciation pressure on the yuan.

Traders and analysts say that any intervention by the People’s Bank of China has been small, barely enough to make a ripple in the market, but that it will show through with a drop in the country’s stockpile of foreign exchange reserves.

And few think the central bank will need to support the yuan for long, because China’s trade surplus is likely to rebound from the depressed level in February that may have prompted the move.

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But the possibility that China has sold some forex reserves to keep the yuan steady flies in the face of charges that it has consistently suppressed the currency’s value.

It also all but rules out any concern that Beijing might engineer a significant depreciation to support struggling exporters at the same time as its neighbours’ currencies weaken.

• A d v e r t i s e m e n t

Instead, it points to a government that is true to its word about wanting a stable yuan, at least against the dollar, whether the day-to-day pressure is for appreciation or depreciation.

Full story here.

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