China’s central bank will not allow a significant decline of the yuan and has urged major state-owned banks to scale back U.S. dollar purchases.
The order from Chinese officials comes as the yuan faces heavy downward pressure amid drastic additional tariffs on Chinese goods exported to the U.S.
U.S. President Donald Trump announced so-called “reciprocal” tariffs last week on trading partners around the world. The total levies against China was brought up to 104% starting Wednesday morning after the Asian country refused to give in to Trump’s demands.
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In his announcement last week, Trump said there would be a 34% tariff against China on top of the 20% duty he imposed earlier this year. China retaliated by matching the 34% tariff, prompting Trump to impose an additional 50% tariff when Beijing did not drop its tariffs on U.S. goods by his Tuesday afternoon deadline.
China has vowed to “fight to the end” and says it would not back down from Trump’s “blackmail.”
The People’s Bank of China (PBOC) sent the new guidance to state banks this week, asking them to withhold U.S. dollar purchases for their proprietary accounts, according to Reuters.
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Major banks were also told to step up checks when executing dollar purchase orders for clients, in a move markets view as a way for the central bank to curb speculative trades, the outlet reported.
China’s large state banks were seen selling dollars and purchasing yuan aggressively to slow the pace of yuan declines in the onshore spot market on Wednesday, according to the outlet.
China’s central bank will not resort to yuan devaluation to cushion the blow from tariffs on exports and the overall economy, Reuters reported.
“A sharp depreciation will not happen as that could hurt market confidence, but a modest depreciation will help exports,” a policy advisor told the outlet.
“We should also assist key enterprises through subsidies, tax rebates, or market diversification,” the person added.
The PBOC’s focus on steady yuan moves comes as the trade war with the U.S. severely challenges the competitiveness of China’s massive export sector, which suggests that the priority remains financial market stability.
Reuters contributed to this report.
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