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China’s central bank has stepped in to curb the rapid rise of the yuan, signaling growing concern over the currency’s sharp appreciation against the U.S. dollar. The People’s Bank of China (PBOC) announced it will remove the 20% risk reserve requirement on foreign exchange forward contracts starting March 2, a move designed to encourage dollar buying and slow the yuan’s momentum.
The decision follows the yuan’s surge to a near three-year high against the dollar. Since April last year, China’s currency has strengthened more than 7%, fueled largely by a surprising boom in exports and sustained capital inflows. Alongside the policy change, the PBOC also set a weaker-than-expected daily trading band for the yuan, reinforcing its intention to temper further gains.
Market analysts say the move reduces the cost of betting against the yuan, making it less punitive for businesses and investors to purchase dollars through forward contracts. While the policy is expected to ease appreciation pressure, experts believe it will only moderate the pace of gains rather than reverse the broader trend, especially if the dollar remains weak.
A stronger yuan makes Chinese assets more attractive to foreign investors and lowers import costs. However, it creates significant challenges for exporters whose revenues are largely denominated in U.S. dollars. Several Chinese companies have already reported profit declines linked to foreign exchange losses. Beijing Ultrapower Software Co cited yuan strength as a factor behind a 28% drop in 2025 profit, while Suzhou Junchuang Auto Technologies reported a 31% earnings slump. Other firms, including Ninebot and Shenzhen-based technology companies, also flagged negative currency impacts.
Recent data shows exporters have rushed to sell dollars, leading to $79.9 billion in net forex inflows in January, one of the highest levels on record. Despite intervention efforts, economists suggest the PBOC sees limited depreciation risk and believes the yuan may still have room to appreciate amid strong export performance and diversified global trade demand.
