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China Faces Tough Choices in Currency Defense as Yuan Weakens

  • Revising the fix, narrowing the band are among the options
  • PBOC may want to avoid taking a heavy-handed approach: StoneX
Pedestrians walk down Nanjing Road in Shanghai, China.

Pedestrians walk down Nanjing Road in Shanghai, China.

Photographer: Qilai Shen/Bloomberg
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Bloomberg News
Updated on

After a months-long effort to prop up the yuan, the People’s Bank of China has cycled through most of its policy tools, leaving it with some tough choices.

As the currency hovers near the weak end of a daily 2% trading band against the dollar, the specter of extreme measures -- however unlikely -- is growing. Already, there are signs that China is intervening in foreign-exchange markets, like Japan has done. A one-time revaluation and restricting the yuan’s range are other major tools.