The Chinese Communist Party Foreign Exchange Administration Warns Banks not to Sell the Renminbi

It is reported on Aug. 24 that CCP officials were unusually upset by the continued decline of the Yuan against the U.S. dollar. Communist China’s Administration of Foreign Exchange called several banks on Wednesday to warn them not to sell the Yuan, a new sign of official agitation about the Communist Party’s reaction to the recent Yuan weakness.

The Yuan hit a two-year low of 6.8704 early Wednesday and is down about 1.8% so far in August. Part of the reason is the hike of the U.S.’ interest rate, but the root cause is the impact of the economic slowdown in Communist China.

A source at a bank revealed that the buy orders for the dollar was so large that it was eventually stopped by a phone call from the Central Bank. Reports have confirmed the existence of this call with at least four people with direct inside knowledge, but no further details were provided.

The Yuan’s depreciation in August was the biggest drop since April, when the Communist Party’s Central Bank cut the reserve requirement ratio for foreign exchange deposits at financial institutions by 1 percentage point to 8 percent in late April, in an effort to support the Yuan’s exchange rate.

Industry sources said the regulator’s unusual move indicates that expectations of a depreciation of the Yuan have begun to thicken. The Chinese Communist authorities may want to stabilize market expectations before guiding the Yuan to depreciate in an orderly manner.

Recent economic indicators show that Communist China is experiencing an economic malaise, with a record surge in unemployment benefits in June, and exports under pressure from weakening global demand.

Outflows from bond markets and last week’s unexpected cuts in two key interest rates have also put increasing pressure on the Yuan, while the Communist China’s yield and rate cut policies run counter to other large economies that are also facing inflation.