China intervenes to support tumbling yuan/renminbi
Beijing (Aug 12) China intervened on Wednesday to prop up the yuan in the last minutes of trading, according to people familiar with the matter, in an apparent attempt to prevent an excessive fall in the currency as the authorities seek to give the market more say in setting the exchange rate.
The yuan had dropped nearly 2% to its lowest level against the dollar during mainland trading, with one dollar buying about 6.45 yuan, as the People's Bank of China followed through on its pledge to let market forces play a bigger role in determining the yuan's value.
To that end, the central bank set Wednesday's reference rate for the yuan based on the currency's closing level in the previous trading session. In the past, it had often ignored the daily market moves, at times setting the level--also known as the midpoint, or fixing--so that the yuan was stronger against the dollar even on days after the market indicated it should have been weaker.
But the move led to more selling of the yuan, and a statement by the central bank earlier in the day trying to reassuring investors that there was "no economic basis" for continued yuan depreciation largely failed to stabilize the market.
The PBOC then instructed state-owned Chinese banks to sell dollars on its behalf in the last 15 minutes of Wednesday's trading, according to the people. The result: The yuan jumped about 1% in value against the dollar in the final moments of trading, bringing it to a level where one dollar would buy 6.3870 yuan.
The Chinese currency is now down 2.8% since Monday's closing.