PBOC’s Yuan Support Through Fixing Causes Headache for Companies
- Stronger reference rate triggers paper loss on foreign assets
- Beijing has recommended using fixing for accounting since 2007
This article is for subscribers only.
China’s central bank has used an artificially strong reference exchange rate to defend a weak currency this year. This intervention has inflicted unintended pain on some.
For years, Chinese companies have been basing their foreign exchange accounting on the People’s Bank of China’s daily yuan fixing, rather than the prevailing market rate, as recommended by the country’s Ministry of Finance. But as the PBOC has set the fixing consistently stronger than the spot level since June, the gap would make dollar assets appear lower in value in yuan terms on a corporate balance sheet, resulting in a paper loss.