(Yicai) Sept. 14 -- The People’s Bank of China, the country’s central bank, will issue the second batch of offshore Chinese yuan notes in the past month to help stabilize the Chinese yuan.

The PBOC will issue CNY15 billion (USD2 billion) worth of six-month central government bills in Hong Kong on Sept. 19, CNY5 billion (USD688 million) of which will be for rollovers of existing notes and CNY10 billion for new notes, Shanghai Securities News reported today.

On Aug. 22, the PBOC said it would issue CNY35 billion of central government bills in Hong Kong, CNY20 billion of which were three-month notes. This year, the central bank has issued nine batches of bills in Hong Kong totaling CNY110 billion (USD15.1 billion).

“A larger issuance of central government bills can moderately tighten the Chinese yuan liquidity in the offshore market and increase the cost of shorting the yuan,” said Wang Qing, chief macro analyst at Golden Credit Ratings.

The yuan liquidity has been tight recently. On Sept. 12, the offshore yuan Hibor, a gauge that measures offshore yuan liquidity conditions, rose 51 basis points to 4.44 percent, the highest since April 2022. The three-month offshore yuan Hibor rose 24 basis points to 4.11 percent, the highest since 2018.

“The rise of the offshore yuan Hibor reflects an increase in lending costs, which pushed up the costs of speculating on shorting the Chinese yuan exchange rate,” said Zhou Maohua, macro-financial researcher at China Everbright Bank. The foreign exchange market is greatly affected by expectations, and the PBOC’s issuance of offshore central notes and tightening of the yuan liquidity are intended to stabilize the exchange rate and avoid irrational fluctuations in the market, Zhou added.

The onshore and offshore Chinese yuan exchange rates rebounded by about 800 points and 1,200 points, respectively, against the US dollar this week as of yesterday, according to data provider Choice.

The rise in macro-prudential adjustment parameters of cross-border financing, the cut in foreign exchange deposit reserve ratio, and the increase in the scale of central government bills issued offshore are a sufficient response to exchange rate fluctuations at a policy level, industry insiders believe.

If there will still be depreciation pressure on the offshore Chinese yuan exchange rate in the future, the PBOC may increase the regulation on the offshore yuan liquidity by issuing additional central bills, stabilize market expectations, and promote the integration of the central parity rate, onshore exchange rate, and offshore exchange rate, Sheng Songcheng, former head of the Financial Survey and Statistics Department of the PBOC, previously said.

Editor: Futura Costaglione