Tags: China | central | bank | yuan

WSJ: China's Central Bank Pushed Yuan Lower

Friday, 28 Feb 2014 07:59 AM

By Dan Weil

China's central bank was behind the yuan's drop during the last week, which took it to a seven-month low against the dollar, people familiar with the central bank's thinking tell The Wall Street Journal.

The People's Bank of China (PBOC)'s move came as part of the government's effort to get the currency ready for more open trading, the sources explain.

The central bank has been lowering the benchmark against which the yuan trades, and it directed state-owned Chinese banks to buy dollars, traders tell The Journal.

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Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

"The PBOC is testing the market as it prepares to widen the yuan's trading band," one of the people familiar with the bank's thinking tells the paper.

The dollar traded at 6.145 yuan early Friday.

Many speculators have bet that the yuan would continue its gradual rise of the past few years, and authorities wanted to create a two-way market, The Journal sources say.

"The move is the clearest sign yet that Chinese leaders are pressing ahead on financial reforms," the paper states. To be sure, it's also possible that the central bank seeks a weaker yuan to boost exports as economic growth softens.

According to the Chinese State Administration of Foreign Exchange (SAFE), the recent declines are the result of market corrections from previous trading strategies, the Xinhua news agency reports.

SAFE notes that two-way fluctuations are typical due to forex rate mechanism reforms.

China's exports increased 10.6 percent in January from a year earlier. But that may not do much for the economy, says Zhiwei Zhang, Nomura's chief China economist in Hong Kong.

"China's economy is driven more by investment than exports, and therefore a moderate pickup in trade cannot offset the slowdown in investment," he writes in a commentary obtained by Forbes.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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