Banks will now have to hold extra dollars with the People’s Bank of China (PBOC) instead of making loans or selling the dollars for yuan in the interbank market, with the latter likely to pressure the People’s Bank of China (PBOC) to absorb it in the form of funds outstanding for foreign exchange. The central bank may be reluctant to do that in order to avoid explicit FX intervention and unnecessary yuan liquidity injections in exchange. People’s Bank of Chin held an unexpected, improvised meeting with major forex market players after which the central bank published a statement that exchange rate can’t be used as a tool to stimulate exports via depreciation nor to offset impact of rising commodity prices via appreciation. Do you this move is meant to prevent unnecessary yuan gains?

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