bonds, with approximately US$1.25 trillion of these securities. It is estimated that China is the largest single nation holder of U.S. treasury bonds, which are deemed to be a safe haven for capital among major central banks around the globe. Ī large part of China's reserves are denominated in U.S. To intervene, the government can buy or sell currency through its interbank market, where the central bank, the People's Bank of China, maintains 'designated foreign exchange banks' to operate on its behalf for onshore spot market transactions. On the other hand, if the country wants to weaken its currency, it uses its local currency to buy foreign currency. To strengthen the yuan, the Chinese central bank sells foreign currency reserves (typically dollars) into the market.

Ĭhina has customarily used a portion of its reserves to influence the value of its currency through foreign exchange market interventions. It currently holds the world's largest stockpile of reserves, having amassed an estimated US$3.2 trillion. When China began to open its economy to foreign investment in the 1980s and '90s, the country began to accumulate large amounts of dollar reserves. The government then prints local money for use by individuals, companies and banks. Investors who exchange dollars or other foreign currency for yuan must sell them directly to China's central bank, which incorporates them into the country's foreign reserves. Managing The Currency: Market InterventionĬhina has maintained strict rules for individuals and banks holding foreign currency, and thus the currency is not yet considered to be fully convertible. In a statement, China's government said that 'henceforth the mid-point of an expanded 2% band within which the currency can move on any single day would be based on the previous day's closing value.' It also said the currency rate would be determined by 'demand and supply conditions in the foreign exchange markets and the movement of major currencies.' With this change, the country was seen moving its policy from a rigid band and toward a floating currency rate. In its policy move, the government said it would consider the previous day's trading in the establishment of the currency rate, effectively considering the influence of the market. In August 2015, China took a step further by allowing its currency to devalue outside of the previous trading band. Over the past decade, the government has gradually allowed the trading band to widen, starting at +/-0.3% and finally reaching +/-2% by March 2014. In order to tame economic instability, China fixed its exchange rate in 1995 at slightly more than 8 yuan to the United States dollar and maintained that peg until July 2005, when it made a move toward a liberalisation of its currency policy by introducing a narrow trading band. Unlike many of its international trade partners (who allow the values of their currencies to float freely against others), China has a strictly controlled currency policy where it regulates trading activity and tries to control daily movements of the yuan on the forex market. Gradual alterations and an evolution in the country's foreign exchange policies have been central to its attempts to ease into a position as a leading world economy while promoting the yuan as a global reserve currency. As it struggles to evolve from an underdeveloped emerging market to a central player in the global economy, China has experienced growing pains and faced policy decisions that have frequently sent shockwaves through markets around the world. All Rights Reserved.For many investors, China and its economic policies have appeared to be at the epicenter of major shifts in the global economy-shifts with commodities prices and global commerce, stock market fluctuations, and foreign exchange levels.Īs the main engine of trade in the dynamic economy of Asia, China and its currency ( the yuan) have exercised growing roles in that region and across the globe. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2019 and/or its affiliates. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. Factset: FactSet Research Systems Inc.2019.

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Chinese currency rates