China to raise FX reserve requirement to slow yuan's rally Reuters
China to raise FX reserve requirement to slow yuan's rally - Reuters
In short
The People's Bank of China is preparing to increase its foreign exchange reserve requirement ratio for financial institutions. Policymakers are utilizing this regulatory mechanism to dampen rapid currency appreciation without resorting to direct capital controls. By requiring institutions to hold more foreign currency in reserve, the central bank reduces offshore liquidity and tempers speculative inflows.
Key points
- Regulators are relying on administrative ratio adjustments to effectively temper ongoing…: Regulators are relying on administrative ratio adjustments to effectively temper ongoing currency market volatility.
- Restricting foreign exchange liquidity helps authorities limit speculative upward pressur…: Restricting foreign exchange liquidity helps authorities limit speculative upward pressure on the sovereign exchange rate.
- Financial institutions will need to adjust their reserve allocations to comply with the s…: Financial institutions will need to adjust their reserve allocations to comply with the stricter central bank mandate.