China Seeks to Steady the Yuan as Trump Takes Office
China’s central bank moved on multiple fronts this week and last in an effort to shore up its currency, the yuan, which has languished near a 16-month low relative to the dollar. Authorities announced plans to park more U.S. dollars in Hong Kong, increase offshore borrowing limits for companies, and cautioned investors against speculative activity. Currently, China holds around $3.2 trillion in foreign reserves, although the exact distribution of those funds remains largely undisclosed.
These measures come amid a dominant U.S. dollar and uncertainty surrounding potential trade barriers, especially with the new Trump administration. Since early November, the yuan has fallen more than 3% against the dollar, reflecting concerns that incoming tariffs and a slowdown in China’s economy could intensify downward pressure. In response, the People’s Bank of China (PBOC) has been setting the yuan’s midpoint guidance at firmer levels than the market projects and has signaled its willingness to intervene further if needed. Market observers note that the announcement to issue more offshore yuan bills in Hong Kong is part of the PBOC’s strategy to control offshore liquidity and stabilize the currency.
The dollar has slowly appreciated against the yuan since Donald Trump’s election.
In a related step on Monday, China kept its benchmark loan prime rates (LPRs) unchanged for the third straight month. The one-year LPR remains at 3.1%, and the five-year LPR, which heavily influences mortgage costs, stays at 3.6%. While banks previously cut rates significantly in late 2024 to spur growth, the government’s achievement of its 5% growth target last year—coupled with ongoing yuan weakness—has limited the urgency for further monetary easing. The Politburo also indicated plans to shift to a more accommodative monetary stance in 2025, marking a notable change after more than a decade of tighter policy.
China’s balancing act underscores the broader challenge of stabilizing currency while fostering economic momentum. Although additional policy tools could alleviate near-term market pressures, some observers note that repeated interventions introduce uncertainties of their own. In this climate, assets less prone to political and monetary influence sometimes draw attention as a way to diversify and hedge against unforeseen shifts. As the PBOC delays rate changes in either direction, all eyes will be on President Trump, the Federal Reserve, and the U.S. economy to see whether they can weather the coming storms of inflation and recession.
