Coronavirus: is China re-pegging the yuan to the US dollar to avert a financial crisis?

In the aftermath of the global financial crisis, the People’s Bank of China (PBOC) effectively held the exchange rate at 6.83 from late 2008 until June 2010

Amid the current economic and financial environment, a PBOC official said late last month that the yuan would fluctuate around the level of 7 yuan ‘in the future’

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Analysts said the phase one trade deal signed with the United States in January also included an exchange rate provision that prohibits competitive currency depreciation. Photo: AP

Published: 6:30pm, 9 Apr 2020Updated: 9:48pm, 9 Apr 2020

China’s central bank may be re-pegging the yuan’s exchange rate against the US dollar to avert the threat of a financial crisis and create a sense of stability amid the huge economic and financial uncertainties resulting from the coronavirus pandemic, according to analysts.

While the central bank has never publicly admitted that it would peg the yuan to the US dollar, in the current economic and financial environment, Chen Yulu, a deputy governor at the PBOC, said late last month that the yuan would fluctuate around the level of 7 yuan “in the future”.

Such a move would mirror the strategy Beijing adopted a decade ago given heightened uncertainty in the aftermath of the global financial crisis. The People’s Bank of China (PBOC), the nation’s central bank, effectively held the US dollar-yuan exchange rate at 6.83 from late 2008 until June 2010.

Analysts said that Chen’s comments signalled Beijing’s reluctance to weaken the yuan substantially despite economic challenges, and pointed to the central bank considering the adoption of a de facto peg in the yuan exchange rate.

PBOC leaders have hinted they may be targeting seven. Although we are not sure how a stronger currency helps in a post-Covid-19 adjustment

Cliff Tan

“PBOC leaders have hinted they may be targeting seven,” said Cliff Tan, East Asian head of global markets research at MUFG Bank. “Although we are not sure how a stronger currency helps in a post-Covid-19 adjustment”.