In response to the weakening of the Chinese yuan and heightened global economic tensions, China's central bank has emphasized its stated goal of preventing unilateral moves in the currency market. The People's Bank of China (PBOC) announced on Thursday that it would guide the yuan back to stability when faced with one-sided speculative bets, and it would work to prevent excessive volatility.

This statement came as the yuan fell to its weakest level since November, driven by predictions that the United States would not rapidly decrease interest rates and concerns over China's economic recovery. The resurgent dollar and broader risk aversion have placed additional pressures on Asian currencies.

"The central bank’s goal and determination to maintain the basic stability of the yuan’s exchange rate will not change," Zhu Hexin, deputy governor of the PBOC and head of the State Administration of Foreign Exchange, stated during a press briefing in Beijing.

At the close of trading in Shanghai, the yuan was relatively stable at 7.2391 to the dollar. Meanwhile, the PBOC set its daily reference rate at 7.1020 per dollar, allowing for a 2% fluctuation margin. Earlier in the week, the central bank allowed for a moderate depreciation by weakening the fixing unexpectedly.

The PBOC's comments, while echoing previous warnings to currency speculators, reflect the Chinese authorities' concerns about extreme fluctuations in the yuan that could threaten financial stability. This stance coincides with Japan and South Korea's expression of "serious concerns" over the depreciation of their currencies, signaling potential intervention to curb volatility.

During a trilateral meeting in Washington, U.S. Treasury Secretary Janet Yellen acknowledged these concerns, potentially giving Tokyo and Seoul more leeway to support the yen and the won.

According to a report published by the Communist Party-backed People's Daily and shared on the PBOC's WeChat account, China will strive to ensure that the yuan's exchange rate is primarily determined by market supply and demand, aiming for overall stability. Following a review of a book by President Xi Jinping on China's financial work, the central bank reaffirmed its dedication to prudent monetary policy and efficient financial resource utilization.

The book, which compiles President Xi's speeches since 2012, has been hailed by state media as an "innovative contribution" to Marxist political economy, setting the course for "financial development with Chinese characteristics." One particular excerpt caught the attention of market traders, sparking a rush to decode Xi's financial strategy.

However, some analysts, including Logan Wright, director of China market research at Rhodium Group, questioned the PBOC's ability to maintain its strong defense of the yuan over the long term. Wright suggested that the commitment to stability might not be sustainable, forecasting potential currency weakening ahead.

"I think the PBOC is doing this because they’d rather avoid immediate depreciation because that would catalyze additional capital outflows," Wright explained. "But eventually these long periods of stability in the exchange rate do not last."

Bloomberg Article