Bank of China Could Change Monetary Policy to Curb Yuan Specultion

China’s central bank signaled on Wednesday it was prepared to change its monetary strategy to fend off inflows of speculative capital, as Beijing struggles to control a tide of cash washing in from overseas markets.

The move came as April exports blew past expectations, which appeared on the surface to indicate that both China’s economy and global demand were on the mend. But economists were quick to suspect the figures were artificially inflated by investors who were disguising speculative bets on the yuan currency as trade payments.

Faced with the risk that such inflows could cause the yuan to appreciate so quickly that it destabilizes exports and the broader economy, the People’s Bank of China (PBOC) has begun intervening heavily in the domestic currency market this year, buying up dollars and selling yuan.

This leaves the question of how to keep the yuan it has sold from distorting domestic markets.

On Wednesday morning, during a routine call to primary dealers in China’s interbank market, dealers told Reuters that regulators had queried them for demand for three-month bills.

Hours later, after markets had closed, the PBOC said it would auction 10 billion yuan ($1.6 billion) of three-month bills on Thursday.

via Reuters

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