China Moves to Tame Yuan Rally by Slashing Shorting Costs — Update
China's central bank has started taking steps to check the yuan's recent advance, dusting off an old playbook that would reduce the cost of betting against the currency.
The People's Bank of China announced it would slash the risk reserve requirement ratio for financial institutions conducting foreign-exchange forward trading to zero from 20%, a move that effectively makes purchasing the dollar cheaper.
The PBOC said change would take effect March 2 and reiterated its pledge to keep the yuan's exchange rate stable at a reasonable and balanced level.
The Chinese yuan weakened after Friday's announcement, after strengthening for ten consecutive sessions to its highest levels against the greenback in nearly three years. The dollar gained roughly 0.1% against the onshore yuan to 6.86 yuan by midday.
Chinese banks currently have to set aside a 20% risk reserve on forward currency trades. This "speed bump" was implemented in September 2022 when the yuan faced pressure to weaken from a surge in the dollar and a slowing Chinese economy.
While Beijing has recently signaled more tolerance for a stronger yuan, Chinese officials have also frequently warned against bumpy currency fluctuations that could hurt exporters. Authorities have recently restrained the yuan by setting the so-called daily fixings--guideposts for yuan trade which restricts it from moving more than 2% in either direction--at levels weaker than market expectations.
The PBOC's reference rate for the dollar against yuan remained unchanged at 6.9228 on Friday, higher than a median estimate of 6.8435, according to Maybank.
"Along with the fix, it is clear that PBOC wants the yuan appreciation pace to slow", said analysts at Maybank in a note. Many suggest that China has gained some leverage to do so from the yuan's rapid gains as well as the U.S. Supreme Court's decision to overturned the Trump administration's tariffs, they added.
The PBOC has adjusted the requirement ratio on foreign-exchange forward trading several times over the past decade to manage the yuan. The requirement could be reimposed if concerns about the Chinese currency's appreciation abate.
Write to Singapore editors at singaporeeditors@dowjones.com
(END) Dow Jones Newswires
February 27, 2026 00:57 ET (05:57 GMT)
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