China Raises Foreign Currency Reserve Requirement to 6%; Yuan Falls 0.37% After Decision
Key Facts
The People’s Bank of China announced on November 3 that it would raise the reserve requirement on foreign currency deposits held by financial institutions from 4% to 6%, an increase of two percentage points that takes effect on November 15. The announcement came as the yuan had risen more than 5% against the dollar since the start of 2026, putting the move alongside the currency’s strong gains this year. The central bank said the adjustment aims to "strengthen the management of foreign currency liquidity at financial institutions." Reuters estimated the measure would withdraw an additional $24 billion from the financial system, based on official foreign currency deposit data. Raising the requirement means financial institutions will hold a larger share of their foreign currency deposits in reserve.
The onshore yuan fell by as much as 0.37% after the November 3 announcement, reaching 6.6728 per dollar, its weakest level since October 23. Reuters said the currency appeared headed for its biggest daily decline since May 15. The move followed the reserve requirement increase, in the same session as the announcement. The 6.6728 level was the lowest price reached by the onshore yuan during the decline that followed the decision. The time comparison cited in Reuters’ coverage was based on the last time the currency had recorded a weaker level, on October 23.
Despite the decline following the announcement, the yuan’s rise since the start of the year remained part of the decision’s backdrop. Reuters said the currency had gained more than 5% against the dollar through November 3, linking the rise to strong Chinese exports and large trade surpluses. It added that companies had converted foreign revenue into the local currency in large volumes, supporting demand for it. This coincided with the central bank raising the reserve requirement from 4% to 6%. The change amounts to two percentage points and takes effect on November 15.
In remarks made amid the decision, Zou Lan, deputy governor of the People’s Bank of China, said at a financial forum in Hong Kong that China remained committed to having the market "play a decisive role in shaping the exchange rate." The remarks put the market’s role in determining the currency among the messages from Chinese officials during that period. The announced measure concerns the reserve requirement on foreign currency deposits held by financial institutions. The central bank had stated that its aim was to strengthen the management of foreign currency liquidity. The new requirement, 6% instead of 4%, takes effect on November 15.
The immediate historical background to the reserve requirement dates to September 2023, when the People’s Bank of China cut it by two percentage points, from 6% to 4%, effective September 15. The current decision reverses that cut, restoring the requirement to 6% after it had remained at 4% before the November 3 announcement. In activity data released by China’s National Bureau of Statistics, the manufacturing purchasing managers’ index was 49.3% in October, down 0.8 percentage points from the previous month. The non-manufacturing activity index was 49.7%, down 0.5 percentage points, while the services activity index was 50.0%, down 0.2 percentage points from September. The non-manufacturing new orders index was 44.4%, down 2.1 percentage points month on month.
The composite output index also fell to 49.7% in October, down one percentage point from the previous month. In reserve data, China’s foreign exchange holdings stood at $3.4003 trillion at the end of September 2026, down $38.1 billion, or 1.11%, from the end of August. China’s State Administration of Foreign Exchange attributed the decline to the effects of exchange rate and asset price movements, saying the rise in the dollar index and the general decline in global financial asset prices during September contributed to it. The next announced step is to begin applying the new reserve requirement on November 15. At that point, the requirement for financial institutions will rise by two percentage points, from 4% to 6%.