Stable Yuan Supports Global Economy Amid Strong Dollar – People's Bank of China
Pan Gongsheng, Governor of the People’s Bank of China (PBOC), stated that the stability of the yuan is playing a crucial role in maintaining global financial stability. This comes in contrast to the rising U.S. dollar, which has strengthened following Donald Trump’s new tariffs.
Yuan vs. Dollar: A New Currency Rivalry
While many global currencies have depreciated against the dollar, the yuan has remained relatively stable. Speaking at a conference in Saudi Arabia, Pan emphasized:
"A stable yuan has played a key role in maintaining global financial and economic stability. We will apply macroprudential policies to smooth out sharp exchange rate fluctuations."
The yuan has been fluctuating within the 7.0–7.3 range against the dollar, despite record-high yield differentials between U.S. and Chinese government bonds.
How Is China Defending the Yuan?
Beijing has implemented strict measures to control the currency, including:
— Setting a strong daily reference rate to curb speculation.
— Adjusting capital controls to reduce pressure on the yuan.
— Encouraging foreign borrowing to maintain liquidity.
China has delayed easing its monetary policy, despite Trump’s additional 10% tariffs on Chinese goods.
U.S. Policy and Emerging Market Pressure
U.S. Treasury Secretary Scott Bessent reaffirmed that under Trump, the strong-dollar policy remains in place, although the president previously expressed concerns that a strong dollar makes American goods less competitive.
A rising dollar is already hurting emerging markets like Indonesia, increasing borrowing costs and reigniting inflationary pressures.
Risks for China
While a strong yuan stabilizes the global economy, it also poses challenges for China:
— A higher yuan makes imports more expensive, potentially weakening domestic demand.
— Deflation in China has persisted for the second consecutive year, threatening long-term growth.
— Economists warn that China is facing its longest price decline since the 1960s, exposing vulnerabilities in the economy.
China continues positioning the yuan as an alternative to the U.S. dollar, but its currency defense strategy could create new economic risks at home.
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