China moves to slow yuan’s rise as concerns rise over hot money flows, asset bubbles

People’s Bank of China raises the reserve requirement for banks’ foreign exchange deposits to 7 per cent from 5 per cent

But analysts say move likely to have only temporary effect to slow yuan’s rise and will not alter long-term appreciation trend

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Some analysts said Monday’s move by the People’s Bank of China (PBOC) was likely to have only a marginal impact, and yuan appreciation would continue. Photo: Bloomberg

Published: 8:33pm, 31 May 2021Updated: 11:43am, 2 Jun 2021

China’s central bank said on Monday that it would raise the amount of money that financial institutions must set aside as reserves for their foreign exchange deposits, in the latest move to curb the yuan’s recent rapid appreciation.

The increase in the reserve requirement to 7 per cent from 5 per cent will take effect on June 15 and is aimed at strengthening foreign exchange liquidity management for financial institutions, according to a statement by the People’s Bank of China (PBOC).

The move by the PBOC comes after the yuan hit a fresh three-year high against the US dollar and a five-year high against a trade-weighted basket of currencies, and also follows recent warnings by Chinese regulators about the risks posed by hot money flows.

In response to the PBOC’s move, the offshore yuan, trading outside the mainland, dropped 0.13 per cent to 6.3684 per US dollar after hitting 6.3525 earlier in the day, its strongest level since May 2018. Onshore yuan, traded in Shanghai, was little changed at 6.3679 per dollar after hitting 6.3570, also its strongest since May 2018.

A rise in the US dollar-yuan exchange rate means the yuan has weakened, since it takes more yuan to buy one US dollar.

China moves to slow yuan’s rise as concerns rise over hot money flows, asset bubbles

People’s Bank of China raises the reserve requirement for banks’ foreign exchange deposits to 7 per cent from 5 per cent But analysts say move likely to have only temporary effect to slow yuan’s rise and will not alter long-term appreciation trend

People’s Bank of China raises the reserve requirement for banks’ foreign exchange deposits to 7 per cent from 5 per cent

But analysts say move likely to have only temporary effect to slow yuan’s rise and will not alter long-term appreciation trend