PBOC Surveys Banks on Dollar Decline Impact on Yuan

The People’s Bank of China (PBOC) has recently conducted an informal survey among financial institutions to gauge market sentiment regarding the weakening U.S. dollar. This move comes as the dollar has experienced significant declines, raising concerns about its potential impact on the Chinese yuan and the broader economy.

The survey, which was sent out last week, sought opinions on the reasons behind the dollar's decline, the expected duration of this trend, and its implications for the yuan. This initiative suggests that Beijing is increasingly concerned about the yuan's recent gains against the faltering dollar and the potential consequences for Chinese exports.

The U.S. dollar has faced a challenging year, with the Dollar Index, which tracks the greenback against six major currencies, falling by 11% so far in 2025. This decline is the worst start for the dollar since 1973. Since early April, when President Donald Trump announced a broad freeze on tariffs, the dollar has tumbled by 6.6% as markets began to anticipate looser U.S. trade and fiscal policies.

In contrast, China’s yuan has remained relatively stable, gaining about 1.3% over the same period. While this stability is beneficial for consumers and importers, it poses challenges for Chinese exporters, who now face higher costs for their goods in the global market, especially in a slowing economy.

The dollar’s decline has placed the PBOC in a challenging position. A stronger yuan helps reduce imported inflation and reinforces Beijing’s image as a steady hand in global finance. However, it could also squeeze manufacturers and exporters, particularly as the country aims to revive growth after a period of economic turbulence.

The PBOC has traditionally favored stability over sharp fluctuations in currency values. Governor Pan Gongsheng emphasized earlier this year that maintaining the yuan’s “reasonable stability” is crucial for both domestic and global confidence.

The survey itself does not necessarily indicate an immediate policy change, but it could be a precursor to future actions. In the past, the PBOC has used subtle measures to manage the yuan’s value without direct intervention. For instance, in April, the central bank reportedly encouraged state-owned banks to limit dollar purchases, effectively supporting the yuan.

Most analysts believe the PBOC is unlikely to intervene unless the yuan strengthens dramatically. However, the timing of this survey is noteworthy, as it comes just days before the expiration of Trump’s 90-day global tariff pause and a month ahead of the expiration of separate U.S. tariffs on Chinese tech imports. This context suggests that the PBOC may be preparing for potential market volatility and seeking to ensure stability in the yuan’s value.