China’s central bank took steps on Friday to slow the Yuan’s rapid appreciation, removing reserve requirements on foreign-exchange forward contracts in a move that could promote Dollar purchases as exporters begin to struggle with the stronger currency.
The action followed the Yuan’s rise to a near three-year high against the US Dollar on Thursday. The currency eased back on Friday, taking a break from its sharp rally, which has been largely fuelled by an unexpected surge in exports.
China’s currency has gained over 7% against the US Dollar since last April. The central bank’s latest action, combined with a lower-than-anticipated daily trading midpoint set on Friday, represents its most forceful effort so far to curb the prolonged rally, Reuters reports.
The People’s Bank of China (PBOC) announced that it will eliminate the 20% reserve requirement on foreign-exchange forward contracts starting on 2nd March, while pledging to keep the Yuan’s exchange rate at a “reasonable and balanced level.”
The move would “make it less punitive for market participants to bet against the Yuan,” Maybank said in a note to clients.
“It is clear that PBOC wants the Yuan appreciation pace to slow.”
While a stronger Yuan can increase the attractiveness of Chinese assets to foreign investors and lower the cost of imports, it can also pressure exporters whose revenues are largely denominated in US Dollars.
On Friday, Beijing Ultrapower Software Co cited the Yuan’s appreciation as a factor behind its 28% drop in 2025 profit, adding to the expanding list of companies affected by the currency’s rise.
“The company's revenues are mainly settled in the Dollar, so we swung to forex conversion losses” as the Dollar fell, it stated in a flash earnings statement.
The PBOC’s decision comes as exporters have been rapidly selling Dollars in both spot and forward markets, while importers have been postponing Dollar purchases for payments.
As a result, net foreign-exchange inflows reached $79.9 billion in January, the third-highest level on record, according to official settlement data. This followed record inflows in December.
Last year, the Yuan recorded its largest annual increase against the US Dollar since 2020, and the currency’s upward trend has carried into this year as analysts anticipate another solid performance for Chinese exports.
Chinese exporters have expanded sales to markets beyond the United States after Washington raised tariffs, helping to compensate for subdued domestic demand that continues to pressure the economy.