China raises Reserves requirement as Yuan hits 5+ year low

China puts into action requirements for foreign firms to settle foreign exchange forward yuan positions in the onshore market, the country’s foreign exchange trading platform, operated by the central bank, said in a statement on Wednesday.

Foreign firms will need to set aside 20% of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves starting on August 15, the China Foreign Exchange Trade System said.

Zhou Hao, senior emerging markets economist at Commerzbank AG in Singapore, shared:

The rule is not new as the reserves have been levied against domestic firms since last year. The timing is quite interesting as both CNY and CNH are testing a new high of 6.70.”

The yuan fell to fresh 5-1/2 year lows against the dollar on Wednesday, extending its slide to a fifth straight session, after the central bank sharply weakened its official guidance rate as the dollar surged.

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