• China's central bank has relaxed borrowing rules to bolster the yuan.
• The People’s Bank of China aims to increase offshore borrowing limits.
• Amid external pressures, the yuan is trading near a 16-month low against the dollar.
• Experts remain cautious about the efficacy of these measures.
• Future economic interactions with the U.S. may further influence the yuan's stability.

On January 13, 2025, China's central bank escalated efforts to defend the yuan against mounting economic pressures. The People’s Bank of China (PBOC) announced it would revise its borrowing limits, allowing more offshore borrowing by firms to counteract the yuan's depreciation as it hovers around 16-month lows against a robust U.S. dollar.

The PBOC, along with the State Administration of Foreign Exchange, has raised the macro-prudential adjustment parameter for cross-border financing from 1.5 to 1.75, enhancing the capability of corporations to access foreign capital. This decision reflects the ongoing pressures faced by the yuan, attributed to a combination of a strengthening dollar, declining domestic interest rates, and escalating trade tensions with other global economies.

PBOC Governor Pan Gongsheng affirmed at the Asia Financial Forum that "China has the confidence, conditions, and ability to maintain a stable foreign exchange market." However, economic analysts like Zhu Tian from the China Europe International Business School caution that while the flexibility in borrowing might offer some *relief*, the overall impact on capital flows may be limited. Zhu emphasized, “Why should companies borrow more expensive US dollars?” highlighting the concern of rising U.S. interest rates against the backdrop of economic uncertainty.

The recent measures are part of a broader strategy by the Chinese government to stabilize the yuan amid fears of a rekindled trade dispute with the U.S. As the currency dipped to 7.3315 per dollar, concerns about further devaluation loom, prompting the PBOC to adjust its policies preemptively.

Further stabilizing efforts were announced last week, with plans to issue a record 60 billion yuan in bills to absorb liquidity, combating speculation against the yuan. The PBOC has stressed the importance of correcting disruptive market behaviors to minimize the risks associated with currency fluctuations.

Despite the steps being taken, the underlying economic factors including the fundamentals of China’s economy, international payment balance, and overall market resilience remain pivotal for the yuan's long-term stability.