- PBOC cuts FX risk reserve ratio to zero.
- Move follows yuan rally to 6.8310 per dollar.
- China posted $1.2 trillion trade surplus in 2025.
- Policy aims to curb rapid yuan appreciation.
On Friday, China made a development that was aimed at slowing down a fast appreciation of the yuan, and the central bank of China announced it will drop the foreign exchange risk reserve requirement on some of its forward contracts to zero instead of 20 per cent in effect as of March 2.
According to the PBOC, the move will facilitate the growth of the foreign exchange market and the ease with which enterprises deal with the exchange rates risks. The ruling came after the onshore yuan was trading at 6.8310 to each dollar on Thursday, the biggest rise seen as April 2023, which was the most recent month of consecutive winning of the currency against the dollar.
Exporter Dollar conversion Pushes Yuan to Three-Year High; Analysts divided on the future.
Exporters have been propelled by escalating dollar revenues at the time when China has recorded a trade surplus of 1.2 trillion in 2025, the largest in history and increasing by about 20 per cent annually. It is quite surprising to me, said Yuan Tao of Orient Futures; It is an indication that the PBOC is not interfering because the appreciation of the yuan is too rapid.
Respondent Xu Tianchen, the senior economist of the Economist Intelligence Unit replied: "It is, on the other side, also an indication that the PBOC feels that the currency could not lose its value further, but on the contrary there is still much opportunity to gain value in the currency. The news dropped the offshore yuan by 0.2 per cent.
Turnaround 2022 Crisis Tool; Midgap Depreciation Means managed Appreciation.
The ruling on Friday overturns a September, 2022, action, where the PBOC increased the reserve requirement, which was down at zero, to 20 per cent, to curtail a markedly depreciating Yuan to contain capital flights.
Squeezing it to zero reduces the purchase price of a dollar using forwards, promoting the establishment of two-sided volatility and restraining unilateral gambits on the strengthening of the yuan. Its USD/CNY core rate was 6.9228, and the difference between its 6.9228 and the model estimates was more than 800 pips- this indicates that the PBOC is moving at the same speed and not in reverse.
One of the additional brakes, the Foreign Exchange Reserve Requirement Ratio increases is projected to occur next by bank of America Global Research strategist Janice Xue, who had predicted the move.
Export Relatedness vs Currency Sturdiness: PBOC on a Thin Slicer.
According to the analysts, the PBOC has a balancing act between the strength of currency and competitiveness of exports. Wei He, a Gavekal Dragonomics economist, opined that with the massive reliance of China on exports to drive economic growth, the Peoples Bank of China has yet to be comfortable taking a bigger risk of appreciation.
By year-end, the rate is expected to go to 6.85, according to Kelvin Lam, senior China economist at Pantheon Macroeconomics, who said that repatriation of dollars held offshore will continue to spur the yuan to the stronger end, but PBOC will ensure the appreciation proceeds with slow, measured manner.
