China’s central bank said on Friday it will scrap the foreign exchange risk reserves for some forwards contracts, a move that would reduce the cost of dollar buying.
The People’s Bank of China (PBOC) said it would lower the foreign exchange risk reserves for financial institutions when purchasing foreign exchange through currency forwards to zero from 20%, starting March 2.
The move reverses the PBOC’s September 2022 decision to raise the risk reserve requirements to stem the yuan’s rapid losses and capital outflows.
The yuan notched its biggest annual gain against the dollar since 2020 last year, strengthening past the psychologically important 7-per-dollar level, and the upward momentum has continued into the new year.