Preparing for a wider trading range for the currency, the PBOC engineered the yuan's recent decline in order to shake out speculators, reports the WSJ, citing sources close to the bank. Among the moves made by the central bank are directing state-owned lenders to buy dollars.
Previous to the recent quick decline, the yuan had been on a steady rise - attracting a flood of money into the country trying to benefit from a one-way bet. The PBOC and the country's banks had to mop up $45B of foreign exchange in December, the 5th consecutive month of net purchases. One-way no longer, the yuan has slipped to its lowest level since last summer.
Analysts expect the PBOC to expand the allowed trading range of the yuan to 2% daily, up from 1% now (it was 0.5% in April 2012).
The move to widen the trading band and perhaps weaken the currency comes, of course, as China's economy is slowing down. "I'm more concerned about foreign demand and my customers' ability to pay me these days," says a businessman in Shenzhen.