The move to resume foreign exchange risk reserves would actually raise the cost of shorting the yuan at a time when the local currency is facing renewed downward pressure, according to traders and analysts.
The yuan has been hit by a combination of a strong dollar, a faltering Chinese economy and a more expansive monetary stance adopted by the authorities to prop up growth.
The Chinese currency’s decline has accelerated after the PBOC lowered key interest rates in August to widen the distance of its monetary policy skew from other major economies that are aggressively raising rates.
The yuan has slumped more than 4% against the dollar since mid-August, to above the psychological level of 7 per dollar, and is on track for its biggest annual loss since 1994, when China unified official exchange rates. and market.
The spot yuan was barely moving after the announcement. The yuan in local markets was trading at 7.1450 per dollar, compared to a close of 7.1298 on Friday.
China’s central bank removed risk reserve requirements in October 2020, when the yuan rose sharply.