Chinese Banks Exchanging Dollar for Yuan on Swap Markets
By: Asia Business Outlook Team | Tuesday, 21 November 2023
The major state-owned banks of China were observed trading yuan for U.S. dollars. According to two sources who spoke to Reuters on Nov 21, there has been a significant amount of buying of dollars in the onshore swap market and subsequently selling those dollars in spot currency markets this week. Over the past week, the yuan has increased by 2 percent, reaching levels of approximately 7.13 to the dollar, the highest it has been in nearly 4 months. The big state banks have also been selling dollars for yuan throughout the week, according to sources.
Both sources requested to remain anonymous as they were not permitted to speak to the media about the issue. It is commonly suspected that state banks intervene in the currency market on behalf of the authorities. However, the timing of their actions is unusual, as they typically sell dollars when the yuan is under pressure to depreciate.
The recent actions were taken during a period of widespread dollar depreciation. The dollar index, which assesses the currency's worth in comparison to major trading partners, has slid over 3% in November due to U.S.
According to some market participants, state banks could be attempting to accelerate the appreciation of the yuan and encourage exporters to convert a greater portion of their foreign exchange receipts into yuan. The Chinese currency has depreciated by over 3 percent against the dollar so far this year. State banks selling dollars led to the onshore spot yuan reaching 7.1296 per dollar momentarily, which was stronger than its daily official guidance for the first time in four months.