The decision follows a sharp rally in the yuan, which climbed to a near three-year high against the U.S. dollar in onshore trading on Thursday. The appreciation has been driven in part by exporters rushing to convert dollar holdings after China posted a record trade surplus last year. Following the announcement, the offshore yuan weakened by around 0.2%, according to a report by Reuters.
The People’s Bank of China (PBOC) said it will reduce the foreign exchange risk reserve ratio for financial institutions purchasing foreign exchange via currency forwards to zero from 20%, effective March 2. The adjustment effectively reverses a September 2022 move, when the central bank raised the reserve requirement to curb rapid yuan depreciation and capital outflows.
In a statement cited by Reuters, the central bank said the step is aimed at supporting enterprises in managing exchange rate risks, while reiterating its commitment to maintaining the renminbi’s exchange rate at a reasonable and balanced level.
Market participants interpreted the move as a signal that policymakers are growing wary of the pace of appreciation. Yuan Tao, an analyst at Orient Futures, told Reuters that the decision was unexpected and indicated that the PBOC considers the yuan’s recent gains too rapid, suggesting a degree of intervention to smooth volatility.
The yuan recorded its biggest annual gain against the dollar since 2020 last year, strengthening beyond the psychologically significant 7-per-dollar threshold. The upward momentum has extended into the early part of this year, even as the dollar has remained broadly stable.
The latest policy tweak underscores Beijing’s delicate balancing act, allowing market forces to play a greater role in currency pricing while stepping in when movements are viewed as disorderly or misaligned with broader economic objectives.
