China: PBoC rules out competitive Yuan devaluation to boost trade

China's central bank said it has no intention of weakening its currency to gain a competitive trade advantage.
Authorities reaffirm the decisive role of market forces in determining the exchange rate.
Beijing announced greater transparency on foreign exchange data starting in 2027.

The People's Bank of China (PBoC) said on Thursday that China has neither the need nor the intention to depreciate the Chinese Yuan (CNY) to gain a competitive advantage in international trade, according to a statement reported by Reuters.

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The central bank stressed that China has never engaged in competitive currency devaluation and reaffirmed its commitment to allowing market forces to play a decisive role in determining the Chinese Yuan exchange rate.

The PBoC also clarified that it does not set a predetermined exchange rate target or intervene in long-term currency trends. This stance reinforces China's approach to exchange rate policy, as trade imbalances and currency fluctuations remain sensitive issues in international economic relations.

The central bank added that there is no simple linear relationship between exchange rates and the current account balance, emphasizing that a country's external competitiveness does not depend solely on the value of its currency.

Finally, Beijing announced that it will begin reporting additional foreign exchange-related data to the International Monetary Fund (IMF) starting in 2027, a move aimed at improving transparency surrounding its exchange rate policy.

The USD/CNH pair remains stable on Thursday, trading around 6.7040 at the time of writing.

PBOC FAQs

What does the People's Bank of China do?

The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.

Who owns the PBoC?

The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.

What are the main policy tools used by the PBoC?

Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.

Are private banks allowed in China?

Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.

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