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China raises banks' FX requirements to rein in yuan

Section: Daily Dispatches

From Reuters
Sunday, May 30, 2021

SHANGHAI -- China's central bank has directed financial institutions to hold more foreign exchange in reserve, a move that analysts say could help temper a rally in the yuan after the currency hit a three-year high against the dollar on Monday.

The People's Bank of China said it will raise the FX reserve requirement ratio for financial institutions to 7% from 5%, from June 15. The increase will make it more expensive for banks to hold dollars.

... Dispatch continues below ...


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Banks in China have about $1 trillion in foreign currency deposits, some of which are unconverted export receipts and investment flows. Analysts said the rise would force banks to freeze more of those dollars, slowing the yuan’s pace of appreciation by deterring dollar inflows in the longer term.

"The aim is to tighten foreign currency liquidity, raise foreign currency interest rates, so as to ease the yuan's appreciationary pressure," said Shuang Ding, head of Greater China economic research at Standard Chartered. ...

... For the remainder of the report:

https://www.reuters.com/article/china-yuan/update-1-china-officials-talk-down-buoyant-yuan-as-basket-hits-5-year-high-idUSL2N2NI03B

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