The People's Bank of China (PBOC) – China’s central bank – has pledged to advance the cross-border use of the yuan and develop the offshore yuan market, as the mission to stabilize the currency grows more urgent in the face of a strong U.S. dollar. Following its macro-prudential work conference for 2025, the PBOC said it would “enhance the yuan’s functions in cross-border payments, pricing and investment financing, further facilitating trade and investment”. The PBOC also vowed to “develop offshore yuan markets, leverage currency-swap agreements and yuan-clearing banks, accelerate the development of Shanghai as an international financial hub, and consolidate Hong Kong’s status as a global financial center”, according to a statement released after the two-day gathering. The announcement came as a persistently strong U.S. dollar continues to pressure global currencies, with the Federal Reserve (FED) holding off on rate cuts and U.S. President Donald Trump repeating threats to place tariffs on imports from the 10 emerging national economies that comprise the BRICS bloc in retaliation for their de-dollarization efforts.
“The central bank has consistently held the yuan’s daily fixing firm during periods of depreciation, especially in the past decade, which could trade time for space until the U.S. dollar retreats,” said Raymond Yeung, Chief Greater China Economist at ANZ Bank. He added that the central bank sends a clear signal against yuan depreciation when it strengthens the countercyclical factor in the daily fixing, describing the bank’s credibility “as a key barrier stabilizing the exchange rate”. The PBOC set the fixing rate – also known as the midpoint rate – for the yuan at CNY7.1712 per U.S. dollar on February 20, compared with 7.1705 on February 19. Analysts at Haitong Securities wrote in China Money – a monthly journal supervised by the central bank – that, beyond guiding the fixing, the central bank can also issue offshore central bank bills to manage yuan liquidity and stabilize the exchange rate.
The analysts also pointed to yuan-dollar swap points – the difference between forward and spot prices – as another tool the PBOC can use to manage the market’s currency expectations. During periods of heightened depreciation pressure, the central bank could manage the swap market to narrow the gap, or even push it into negative territory, to curb excessive depreciation expectations. Historically, the PBOC has also employed other tools to stabilize the yuan, such as tightening the management of cross-border capital flows and guiding market expectations, the Haitong Securities analysts wrote, as reported by the South China Morning Post.
