China urges banks to ease dollar demand as yuan nears record low

China is reportedly urging state-owned banks to limit U.S. dollar purchases and step up scrutiny of client transactions as the yuan continues to weaken amid ongoing trade tensions with the United States.

According to a Reuters report citing anonymous sources, the People’s Bank of China (PBOC) issued informal guidance to several major banks to halt their dollar buying activities in the open market.

The move is part of a broader strategy to stabilise the yuan, which recently touched its lowest level in years.

Sources told Reuters that Chinese banks were seen selling dollars and purchasing yuan on Wednesday in efforts to support the currency, signaling the administration’s intent to manage volatility without resorting to a sharp devaluation.

The guidance also includes ramping up checks on individuals and companies seeking to exchange yuan for dollars, aiming to prevent speculative buying.

“A sharp depreciation will not happen as that could hurt market confidence, but a modest depreciation will help exports,” explained a policy advisor quoted by Reuters.

The advisor added that support for key industries could come in the form of “subsidies, tax rebates, or market diversification.”

While the Trump administration has suggested that China is exploring a potential deal to ease tariff pressures, the currency control measures reflect broader preparations for a prolonged economic standoff.

In contrast, Skybridge Capital founder Anthony Scaramucci predicted that China may ultimately devalue the yuan and possibly reduce its holdings of U.S. treasuries.

Arthur Hayes, head of Maelstrom, also commented on the potential market response, stating that a devaluation could lead to increased capital outflows and potentially trigger a rise in Bitcoin (CRYPTO:BTC) demand.

Despite the speculation, Beijing has maintained that it does not intend to use the yuan as a tool in the trade conflict.

The current approach suggests a careful balancing act between market stability and export competitiveness.