China's state-run banks are swapping dollars for yuan as officials tell them to intervene in currency markets

• Chinese officials told state-run banks to intervene in currency markets this week to limit yuan volatility, per Bloomberg.
• Banks are swapping dollars for yuan, while officials are also weighing tools to prevent depreciation of the currency.
• The yuan is down about 2.4% against the dollar this month, and 6% in 2023.

China asked state-run banks to intervene in its currency markets this week to limit the yuan's volatility, according to a Bloomberg report Thursday.

Sources also told Bloomberg that senior officials are weighing tools to prevent further weakening, such as cutting foreign-exchange reserve requirements. Additionally, Beijing has been looking into whether domestic companies have been betting against the currency, accelerating its decline. 

At the same time, a Thursday Reuters report pointed to major financial firms swapping US dollars for yuan holdings in an attempt to slow the yuan's depreciation. 

"State bank dollar selling has become a new normal to slow the pace of yuan depreciation," one Shanghai-based trader told Reuters. 

The Chinese currency declined to about 7.35 per dollar, and it's down about 2.4% against the buck this month, and 6% in 2023.

In its monthly report Thursday, China's central bank said the foreign-currency market is in line with fundamentals and vowed to prevent excessive movements in the yuan.

But the People's Bank of China is also caught in a bind between keeping the yuan stable and trying to stimulate the weakening economy.

Policymakers imposed a series of strong daily reference rates for yuan trading to nudge the market higher. But they have also made a series of rate cuts, which weaken the currency, to help revive economic growth.

A wave of downbeat data has emerged from China's economy over recent weeks as the post-pandemic rebound fizzles.

This week, data on retail sales and industrial output revealed further deceleration in growth. Earlier in August, China's National Bureau of Statistics said consumer prices dropped annually in July for the first time in two years, fueling deflation fears and also prompting warnings from officials to economists not to talk about deflation.