China Allows Some Banks to Raise USD Deposit Rates to Curb Yuan Appreciation
Taylor Wilson
Chinese regulators have lifted a de facto cap on USD deposit rates at select banks, allowing rates above SOFR (~3.61%), aiming to slow the yuan's 3%+ rally this year by encouraging firms to hold dollars rather than convert.
What exactly changed?
In 2023, when the yuan was weakening, regulators capped USD deposit rates at SOFR — the Secured Overnight Financing Rate, a key dollar benchmark, currently around 3.61% — to stop firms from dumping yuan for higher-yielding dollar deposits.
Now the policy reverses: authorities are letting banks offer corporate clients rates above SOFR, effectively removing that ceiling.
This means → the same lever that fought depreciation in 2023 is now being pulled the other way to fight appreciation. The direction flipped; the logic didn't.
Why cool the rally now?
The yuan has strengthened more than 3% against the dollar this year, reaching around 6.77 — the best-performing currency in Asia.
Goldman Sachs forecasts it will climb further to roughly 6.5 over the next twelve months.
In plain terms = a yuan that rises too fast squeezes exporters' margins — the same shipment earns fewer renminbi. Regulators want to tap the brakes.
How far along are the banks?
Bloomberg, citing people familiar with the matter, reports at least three banks — including some state-owned lenders — have received the guidance but have not yet implemented it.
Some banks had already been pulling in above-cap dollar deposits through structured products; the new guidance gives them a more direct pricing channel.
This reflects a shift from tacit workarounds to official authorization — the signal matters more than the mechanics.
What determines whether it works?
Two variables are key: ① how many dollars firms actually choose to retain instead of converting, and ② how many basis points above SOFR banks ultimately offer.
This means → if the spread is too thin, firms will still convert to yuan; only a meaningful premium makes dollar deposits genuinely attractive.
In plain terms = the policy hands banks a tool, but how hard the brakes bite depends on real behavior from both banks and corporates.
Content is for reference only, not financial advice.