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China’s central bank has raised the proportion of foreign currency commercial banks must hold from 5 percent to 7 percent in an attempt to slow the rising value of the renminbi, China’s currency, which edged up last week to its highest value against the dollar in three years.
The renminbi has gained 11 percent on the buck in the last 12 months.
The tactic, which the bank has not used since the Great Recession, will “strengthen foreign exchange liquidity management,” the bank said in its statement announcing the rule.
The stricture also is designed to tamp down soaring commodity prices and reduce the amount of borrowed money circulating in China’s economy, analysts said, according to the Financial Times.
The bank’s new requirement will pull about $20 billion worth of liquidity out of China’s economy, the bank Standard Chartered estimated.
TREND FORECAST: Despite Beijing’s attempts to drive down the value of its currency, which, of course, the central government will do if it rises too high, it may run into difficulties.
As the world economies rebound from the COVID War lockdowns, demand for Chinese-made products will increase, thus driving up their annual GDP, which we forecast will grow about 8 percent. Thus, the stronger their GDP grows, so, too, will its yuan rise in strength.