Beijing, Feb. 14, 2025 -The People’s Bank of China (PBOC) said it would tender central bank bills totalling 60 billion yuan (US$8.2 billion) in Hong Kong on Friday, marking the second time this year it has used the policy tool to stabilise the yuan amid tariff tensions with the US.
The PBOC said it would tender 40 billion yuan in three-month bills and 20 billion yuan in one-year notes through the Central Moneymarkets Unit (CMU) of the Hong Kong Monetary Authority (HKMA) on a fixed-rate, interest-bearing basis
“The issuance of yuan-denominated bills by PBOC, cleared through Hong Kong’s CMU, enables international investors to access (mainland China’s) government credit under market infrastructure governed by common law,” said Terry Yang, a partner at law firm Clifford Chance.
The Chinese government was using the city’s unique features to enable continued international usage of the yuan, including the ability to use onshore Chinese bonds for collateral and repo-financing purposes, he added.
PBOC issued 60 billion yuan worth of bills in Hong Kong last month. That offering was the largest-ever single issuance of offshore yuan bills tendered by the PBOC in the city and marked the first time it had issued bills in January. It was oversubscribed by 2.16 times.
The PBOC has issued central bank bills several times when the yuan faced greater depreciation pressure to signal the stability of the exchange rate. Last year, it issued 12 offshore central bank bills in Hong Kong totalling 275 billion yuan, according to central bank data.
“China is determined to prevent excessive depreciation pressure amid an uncertain Federal Reserve rate path and geopolitical risks”, said Gary Ng, senior economist at Natixis in Hong Kong.
“However, it does not mean the yuan will not be allowed to depreciate, as long as its movement is in line with other non-dollar major currencies.”
US President Donald Trump applied an additional 10 per cent tariff on Chinese goods earlier this month, sending the yuan to record lows. The PBOC has adjusted its approach to setting the daily midpoint and issued offshore central bank bills to raise the cost of shorting the yuan.
Meanwhile, China’s Ministry of Finance planned to sell yuan-denominated bonds worth 12.5 billion yuan next week with tenors ranging from two to 30 years, according to an HKMA statement on Thursday.
The yuan’s prevailing interest rates had recently been lower than those of other major currencies, boosting the appeal of yuan financing, HKMA Chief Executive Eddie Yue Wai-man said in a blog post last week.
In the first three quarters of 2024, issuance of yuan-denominated bonds in Hong Kong surged 35 per cent to HK$776.8 billion (US$99.7 billion), according to HKMA data. (South China Morning Post)
