China Removes Forex Reserve to Slow Yuan Appreciation

China's central bank took steps on Friday to temper the rapid appreciation of the yuan against the dollar, announcing the removal of a 20 percent foreign exchange risk reserve requirement for forward contracts effective March 2. The People's Bank of China (PBOC) framed the move as a way to support enterprises in managing exchange rate risks and promote the development of the foreign exchange market, amid a currency rally that has reached near three-year highs.

The yuan, also known as the renminbi, surged more than 7 percent against the dollar since last April, fueled by a robust export performance that offset weak domestic demand. Exporters, whose revenues are largely denominated in dollars, have rushed to sell greenbacks in spot and forward markets, leading to record net foreign exchange inflows of 79.9 billion dollars in January, the third highest on record. This influx followed even larger inflows in December. However, the strengthening currency has squeezed profit margins for dollar-dependent firms. Beijing Ultrapower Software Co., for instance, reported a 28 percent drop in 2024 profit, attributing part of the decline to foreign exchange conversion losses from the falling...