People's Bank of China Raises Forex Reserve Ratio to Stabilize Yuan

The People's Bank of China announced on November 3 that it will increase the foreign exchange deposit reserve requirement ratio for financial institutions from 4% to 6%, effective November 15. This marks the first such increase in nearly five years and is estimated to withdraw approximately $24 billion from the financial system.

The policy intervention aims to cool a sustained rally that pushed the yuan to its strongest level against the U.S. dollar since June 2022, breaking through 6.65 per dollar. By requiring banks to hold a larger share of foreign currency deposits in reserve, the central bank intends to tighten onshore dollar liquidity and reduce the volume of dollars available for conversion into yuan, thereby protecting export competitiveness.

Following the announcement, the onshore yuan weakened to approximately 6.67 per dollar, marking its steepest single-day decline since May 15. The central bank stated the move is "aimed at strengthening the management of foreign exchange liquidity in financial institutions" and noted it will focus on preventing sharp short-term fluctuations to maintain financial stability without presetting a specific target exchange rate.