China central bank says it will keep liquidity reasonably ample in 2023

The People’s Bank of China (PBOC) will step up financing support to spur domestic demand and support a stable real estate market, the central bank said in a statement after a meeting.

The central bank will keep the yuan exchange rate basically stable while pushing forward yuan internationalisation in an orderly manner, it said.

PBOC also stated that a high amount of foreign currency it has bought recently was a result of commercial banks converting their foreign exchange holdings with the central bank into yuan reserves.

It bought a net 63.6 billion yuan ($9.24 billion) worth of foreign exchange in November, according to
Reuters calculations based on PBOC data released earlier on Wednesday, marking the biggest net purchases since October 2014.

The PBOC said in 2007 and 2008 it allowed some commercial banks to use their foreign exchange funds to replace yuan deposits as part of the reserves they kept with the central bank.

“Starting from 2008, some commercial banks have voluntarily swapped such FX funds into their deposit reserves in yuan,” the central bank said.
“Recently, some commercial banks continued to replace the remaining foreign exchange funds,” it added, noting such operations resulted an increase in the central bank’s net currency purchases from commercial banks and was reflected in its balance sheet.