Why would foreign asset purchases by PBOC temper yuan appreciation? Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate? And why? It amounts to trading non-interest-bearing foreign assets for interest-bearing ones, but I am having trouble seeing whether or why it might cause the yuan to depreciate.
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&quot;Suppose the PBOC buys a bunch of dollar-denominated bonds, using its
dollar reserves. All else equal, what effect should this have on the
yuan-USD exchange rate?&quot;

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&quot; I am having trouble seeing whether or why it might cause the yuan to
depreciate&quot;.

All else is not equal. To return to the original quantity of USD money held it will buy some USD from commercial banks, issuing renminbi in order to do so. Issuing renminbi will have the tendency to cause it to depreciate.