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China walks a tightrope with rapidly rising yuan

Yi Gang isn’t known for his acrobatic skills. Yet these days, the People’s Bank of China (PBOC) governor could be excused for feeling like he’s trying out for Cirque du Soleil.

The balancing act in question concerns a Chinese currency rapidly decoupling from the US dollar – with the yuan rising, rather than doing its usual weakening act.

The tightrope Yi’s team is walking is clear enough. His team must serve both growth demands and the de-risking process he’s pursued since taking the PBOC helm in 2018.

The yuan’s strength can seem paradoxical given the default risks highlighted by China Evergrande Group, the property developer that missed a bond payment last week. Also, the PBOC is loosening monetary policy, albeit slightly, as the Federal Reserve tapers.