China's Central Bank Takes Steps to Support the Yuan, Which Has Been Losing Ground

The People's Bank of China announced that it will stop purchasing government bonds this month as their demand now overshadows the supply.

China's central bank moved to prop up the yuan on Friday as the currency continues to lose ground, with its depreciation being touted as a possible tailwind for bitcoin (BTC) among some in the crypto space.

The People's Bank of China announced that it will halt purchases of government bonds this month as their demand now outstrips the supply.

According to experts, the move highlights the discomfort among policymakers with the sliding bond yields, which move in the opposite direction of prices, and the resulting depreciation in the yuan.

The yield on the 10-year benchmark Chinese government bond fell to below 1.6% earlier this week, showing a sharp 100-basis-point decline over 12 months, according to data from TradingView.

At the same time, its U.S. counterpart rose to 4.7%, which is the highest since November 2023, widening the U.S.-China yield differential in favor of the USD.

As a result, the CNY weakened to 7.32 against the USD, extending its three-month losing streak, which is partly driven by concerns over tariffs under President-elect Donald Trump, who will take office on Jan. 20.

Earlier this week, analysts suggested that the weakening yuan could lead to a capital flight, which might partly flow into the crypto market and contribute to BTC's bullish momentum.