PBoC to issue central bank bills to support yuan

China’s central bank will sell 30 billion yuan ($4.3 billion) of bills using the Hong Kong Monetary Authority’s bond-tendering platform on August 14.

The move will help improve the yuan yield curve in the offshore market, the People’s Bank of China (PBoC) announced on August 6. 

The central bank plans to issue 20 billion yuan of three-month bills and 10 billion yuan of one-year bills. This could reduce offshore yuan liquidity and increase the cost of shorting the Chinese currency, analysts say.

“The Chinese central bank now has a relatively mature framework to adjust the positions in the market, both onshore and offshore,” says Zhang Chen, an analyst with China Galaxy Securities. “Therefore, the PBoC is capable of managing short-term yuan exchange rate risks.”

The central bank also vowed to keep the yuan stable after it fell to below seven against the US dollar – for the first time since 2008 – on August 5.

“The central bank has accumulated rich experience and enough tools during years of managing exchange rate fluctuations,” the PBoC said in a statement on August 5. “The central bank is firmly against short-term speculation and will act if necessary to stabilise market expectation.”

PBoC governor Yi Gang said the central bank is confident of keeping the yuan at an appropriate level. It cut the yuan’s level to 6.9683 per US dollar, lower than 6.9225 one day earlier.

“By tightening offshore liquidity, the PBoC could make it more expensive to short yuan, avoiding attacks by hot money,” says Wang Youxin, a FX analyst at the Bank of China.