PBOC Launches 20% Reserve Requirement for Forex Settlement to Quell Unsteady Yuan

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The Chinese central bank has announced that banks will need to maintain reserves equal to 20% of the foreign exchange forward positions of their clients starting from Monday, 6 August, in a  bid to stabilise an unsteady renminbi.

The People’s Bank of China (PBOC) previously launched reserve requirements for the foreign exchange forward renminbi positions of financial institutions in July 2016, yet rescinded them in September 2017.

PBOC said in an official statement that it would adopt counter-cyclical measures to stabilise foreign exchange markets, and that the reserve increase is intended to forestall macro-economic risk as well as foster the stable operation of financial institutions.

The announcement served to shore up the renminbi, which rose to a session high of 6.8270 on Friday, for a 0.8% rise on the day.

The move follows a drop in the renminbi to 14-month lows against the dollar in the onshore spot market, as Sino-US trade tensions further escalate and cast shadow over China’s economic growth.

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