SHANGHAI – China’s central bank has asked some of the country’s biggest lenders to refrain from immediately squaring their foreign exchange positions in the market, and to run open positions for a while in order to alleviate downside pressure on the yuan, two sources with knowledge the matter said.
As part of this informal “window guidance”, banks have been asked not to square their positions in the inter-bank foreign exchange markets after any U.S. dollar sales to clients, until their spot foreign exchange position hits a certain level, the sources said.
Most banks are allowed to run a net short or long foreign currency position in spot dollar-yuan markets, within defined limits.
The move would effectively mean some of the heavy dollar purchases by companies would be absorbed by banks and sit on their books for a while, thus partially reducing downward pressure on the sliding yuan.
The directive came from a meeting the People’s Bank of China (PBOC) held with a few commercial banks earlier this week, the sources said. Banks were also told that companies requiring to purchase $50 million or more will need to seek the central bank’s approval, Reuters reported.
China’s yuan has lost more than 5 percent against the dollar so far this year to trade 7.2735 per dollar on Thursday, becoming one of Asia’s worst performing currencies for 2023.
The People’s Bank of China (PBOC) did not immediately respond to Reuters request for comment.