PBOC’s Policy Caused Collapse of the Yuan

Forex News

The rate of the Chinese yuan collapsed after the People's Bank of China changed the management regime of the national currency. The Chinese government sharply stopped using the "countercyclical factor" in the yuan fixation mechanism, which led to the weakness of the currency against the US dollar.

The Central Bank of China has instructed some creditors, who contribute to the calculation of the renminbi reference rate, to adjust the use of the "countercyclical factor" so that it does not affect the mechanism, known as fixing. The so-called "countercyclical factor" was introduced in late May 2017, after Moody's agency downgraded China's rating. Beijing took these measures to limit the actions of financial manipulators, as well as to prevent capital outflow from the country.

According to analysts, the use of this factor gave the People's Bank of China more opportunities to control the exchange rate. However, this undermined previous attempts to make the yuan more dependent on market factors.