China to Raise Forex Deposit Reserve Requirement to Curb Yuan’s Rally

The People’s Bank of China (PBOC) will raise the forex deposit reserve requirement ratio for financial institutions from 4% to 6%, effective Nov. 15, its first increase since late 2021.

The move comes as the yuan has gained more than 9% against the U.S. dollar since the start of last year, including more than 4.5% this year.

The requirement forces financial institutions to deposit a portion of their forex deposits with the central bank, reducing market liquidity. Based on nearly $1.2 trillion in forex deposits at the end of June, the increase could theoretically withdraw $24 billion in foreign currency liquidity.