China's yuan nearing 2007 levels

The Chinese Yuan is nearing its lowest level since 2007. The People's Bank of China has been taking steps to try to keep the currency stable while simultaneously lowering borrowing costs in a bid to boost the economy. Yahoo Finance Reporter Ines Ferre breaks down the story.

Video transcript

RACHELLE AKUFFO: Well, the Yuan is on the verge of falling to its weakest level since 2007. The People's Bank of China stepped in to inject the largest amount of short-term cash since February, but is it enough? Here with more on this is Yahoo Finance's reporter Ines Ferre. Ines, what's your watch?

INES FERRE: Yeah, Rachelle. Well, China is trying to build up investor confidence. And the People's Bank of China is trying to keep its currency stable but also lowering borrowing costs in order to boost its economy.

Now just this week, the PBOC cut policy rates, a key policy rates. It also injected the biggest amount of short-term cash since February into its financial system, lowering borrowing costs. And at the same time, keeping a-- a currency stable will-- all of that is very difficult, because if you have a weak Yuan, overseas investors won't wanna be inclined to invest. And at the same time, Chinese companies will not want to convert US dollars into Yuan because they're seeing their-- their currency being devalued.

Now, often it's important to point out that when the Federal Reserve in the US raises its rates, the rest of the world often follows suit because it's forced to in order to protect their currency, because as the US dollar goes up, foreign currencies go down. So in this case, while some other countries have been maintaining high rates, China has been lowering its borrowing rate. And that is impacting its currency. Now, the PBOC also warned traders, by the way, recently not to keep gambling, saying the foreign exchange market is a big deal and maintaining stability is their first priority, Rachelle.

RACHELLE AKUFFO: And we keep seeing these warning signs. I mean, there are reports that large funds have been told to avoid being net sellers of Chinese equities. What do we know about that?

INES FERRE: Yeah, Bloomberg is reporting that the China-- Chinese officials asked large funds to avoid selling these onshore equities more than what they purchased. Now, this is one of the measures that the government is taking to try and shore up stock prices because the stock market often is really a barometer for consumer confidence. And right now, property values are declining in China. Individuals have their wealth tied up in their property values, and if the stock market is also declining, it has a massive, really psychological impact on consumers.

Another idea that's also been tossed around recently is to cut a stamp duty on stock trades in order to shore up investor confidence. That hasn't been done since 2008, Rachelle.

RACHELLE AKUFFO: Certainly strange times and we're actually seeing, you know, the Chinese government trying to manage this but don't seem to have a handle on it at the moment. A big thank you there to our very own Ines Ferre.

INES FERRE: Thank you.