Beijing Caps Yuan, Buys Gold as Dollar Erodes at Margins

The People's Bank of China (PBOC) has been using its daily reference rate for the yuan to cap the currency's value, allowing it to capture only a small portion of the dollar's decline. Since November 2025, the PBOC has set fixings weaker than market expectations, with Monday's fixing at 6.7828 being near-flat compared to Friday's 6.7811.

This mechanism, which allows the yuan to trade only 2% either side of the daily midpoint, has become a lever for Beijing to control the currency's value. On August 25th, the central bank set its fix 633 pips weaker than Reuters' model estimate, days after the yuan touched 6.7192, a three-and-a-half-year high.

The PBOC is also buying gold, with its largest monthly purchase since late 2023 being 20 tonnes in July, extending its buying streak to 21 straight months and lifting reserves to 2,366 tonnes or 8% of total foreign-exchange holdings. Gold is seen as a reserve asset that Washington cannot freeze, a lesson Beijing drew from the West's immobilisation of Russia's central bank assets in 2022.