(Bloomberg) — China expanded its support for the beleaguered yuan with a plan to issue a record amount of bills in the Hong Kong market to add demand for the currency overseas.
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The People’s Bank of China will sell 60 billion yuan ($8.2 billion) of six-month bills in the city on Jan. 15, the Hong Kong Monetary Authority said in a statement. The issuance will effectively mop up an equivalent amount of yuan available in the market and add demand for the currency.
The total issuance is set to be the largest batch on record since the central bank started bill auctions in Hong Kong regularly in 2018, according to Bloomberg-compiled data. Local media outlet Yicai reported earlier this month that the PBOC planned to increase bill auctions.
The yuan’s tumble in recent months, amid concerns over sluggish Chinese economy and potential US tariff hikes, has prompted traders to ponder the PBOC’s commitment to currency defense. The central bank has so far remained firmly supportive of stability. It pledged earlier this month to prevent an overshoot in exchange rates, while keeping stronger-than-expected fixings to cap the yuan’s price moves onshore.
The PBOC has also worked to slow the yuan’s depreciation by creating funding crunches in Hong Kong, using measures such as boosting bill issuance to squeeze short positions on yuan — a strategy last deployed in 2023. Offering broader choices of yuan assets in Hong Kong also serves Beijing’s long-term ambition to globalize the yuan.
“The mopping up of liquidity is likely to keep offshore yuan funding relatively tight in the near-term,” said Wee Khoon Chong, senior APAC market strategist at BNY. But still, “elevated dollar and the on-going tariff uncertainties is likely to exert downside pressure on the yuan in the near-term.”
Jitters on tighter liquidity has helped push up borrowing cost of the yuan in Hong Kong to levels unseen in years. The offshore yuan’s overnight Hibor rose to 8.1% on Tuesday, the highest since June 2021.
As of Jan. 9, the central bank currently has 140 billion yuan locked up through previously-sold offshore yuan bills that expire later this year, data compiled by Bloomberg showed.
–With assistance from Betty Hou.
(Update with comment)
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