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China Is Using the Yuan to Combat Risk of a Market Meltdown 

May 19, 2017

Bloomberg News

China has an insurance policy against a full-scale market meltdown: the daily currency fixing.

With stocks and bonds in retreat amid anxiety over Beijing’s deleveraging campaign, officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. After meeting expectations earlier in the year, the reference rate used by the People’s Bank of China to manage the yuan has come in stronger than the forecasts of four banks who regularly track the measure on 25 of the past 32 trading days.

“The PBOC is using the stronger fixings to prevent panic sentiment from spreading to the currency market,” said Xia Le, chief economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong, referring to the reference rate that’s updated each day. “In the short term, no one can fight against the PBOC when it intervenes through the fixings. Investors will likely become more willing to sell the dollar, pushing the yuan higher from current levels.”

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