WHY DID CHINA CENTRAL BANK START BUYING DOLLARS TO WEAKEN THE YUAN

The government-controlled bank has been selling dollars in the foreign exchange markets to stem the yuan€™s rise and prevent it from falling too fast But the yuan kept rising, stoking a rally in global stocks and commodities that helped inflate bubbles in emerging markets China said it would allow the currency to trade more freely The yuan rose 0 1 percent to 6 2295 per dollar as of 4:16 p m in Shanghai, after gaining as much as 0 3 percent The currency has appreciated 1 3 percent so far this year The PBOC said the one-way appreciation of the yuan was not sustainable€ and that it wanted to break the trends€ of increasing volatility The PBOC said it would fine-tune the yuans value The PBOC said it would strengthen its operations in the spot foreign-exchange market to keep the renminbi exchange rate stable around the equilibrium level, according to a statement on its website WHAT WOULD THE PBOC NEED TO DO TO WEAKEN THE YUAN? The PBOC would need to buy a lot of dollars to weaken the yuan, meaning it would have to provide dollars to the market, which it has so far not been doing Such a move would almost certainly curb the rally in commodities, equities and emerging markets The PBOC said it would strengthen the management of the renminbi exchange rate,€ a hint it could now buy dollars to lower the yuans value HOW HAS THE YUAN BEEN STABLE? China€™s currency has been relatively stable over the past few months as the PBOC has been selling dollars to keep the yuan from weakening too much The yuan has been trading at a narrow range of about 0 1 percent around the central bank€™s daily reference rate, which is set every morning The PBOC has been allowing the yuan to appreciate, but at a much slower pace than the market expected