PBOC Scraps FX Risk Reserve as USD/CNH Climbs Above 6.8500

The People's Bank of China (PBOC) has announced it will cut the foreign exchange risk reserve ratio for forward sales from 20% to 0%, effective March 2. This move reverses a tightening measure introduced in September 2022 that was originally intended to curb rapid Yuan depreciation. By eliminating the reserve requirement, the central bank aims to lower hedging costs and alleviate the upward pressure on the Yuan (CNY). Following the announcement, the USD/CNH exchange rate reacted by rising above the 6.8500 level. The policy shift highlights China's ongoing efforts to balance capital flows and maintain export competitiveness by moderating the currency's recent strength. This intervention is expected to continue impacting major currency pairs, including USD/CNY and USD/CNH, as market dynamics adjust to the new rules.