The Big Take
China’s $100 Billion Short Against Dollar Enriches Hedge Funds
State-owned banks are helping support the yuan and the trade is saddling them with huge potential losses.
China’s embrace of a stealthy strategy to manage its currency is exposing the nation’s banks to billions of dollars of potential losses — and handing easy profits to investors on the other side of the trade.
At the center of it all are transactions known as foreign-exchange swaps. These have quietly become a key tool for state-run Chinese banks seeking to prop up the yuan during periods of outsized selling pressure, according to people familiar with the matter, who asked not to be named discussing a sensitive subject.