China’s central bank stepped in Friday to slow the surging yuan, removing a key reserve requirement to encourage dollar buying.
The yuan recently hit a near three-year high against the dollar, extending a rally fueled by unexpectedly strong exports.
The People’s Bank of China scrapped a 20% reserve requirement on forex forward contracts, effective March 2, to ease pressure on the currency.
The move makes it less costly for market participants to bet against the yuan, signaling official concern over rapid appreciation.
Despite the adjustment, analysts say the measure will only moderate gains, as the dollar remains broadly weak.
A stronger yuan reduces import costs and attracts foreign investment but squeezes exporters paid largely in dollars.
Several Chinese firms have reported profit declines due to currency conversion losses, highlighting the growing impact of currency volatility.
Massive forex inflows, totaling nearly $80 billion in January, reflect exporters’ rush to sell dollars, intensifying pressure on the central bank to stabilize the exchange rate.
