PBOC Raises FX Reserve Requirement Ratio to 6% for First Time in Five Years to Curb Yuan Appreciation Pace
nashnova research
The PBOC lifted the FX deposit reserve ratio from 4% to 6% — its first use of this tool in five years — to cool a yuan that has rallied 14 straight sessions past 6.65. Goldman estimates the move locks up $20 billion, roughly a third of China's monthly FX settlement flow.
What exactly did the PBOC do?
Starting November 15, 2026, the FX deposit reserve ratio — the share of foreign-currency deposits banks must park with the central bank — rises from 4% to 6%, a 2-percentage-point increase.
This means → a slice of dollars inside the banking system is now frozen; banks can't sell those dollars for yuan, easing upward pressure on the currency.
The move directly reverses the September 2023 cut (from 7% to 4%), which was designed to stop the yuan from weakening. The direction is now flipped.
How fast was the yuan rallying to force this move?
Onshore yuan appreciated for 14 consecutive trading sessions from October 14, breaching the 6.65 level on November 2 — its strongest since June 2022.
Goldman economists Andrew Tilton and Hui Shan estimate the yuan has gained roughly 9% against the dollar since May 2025, an annualized pace of about 6% — "despite multiple PBOC interventions to slow the appreciation."
In plain terms = the central bank had been tapping the brakes for months, but the car kept accelerating — so it reached for a heavier tool.
What other signals did the PBOC send alongside the ratio hike?
On the same day, the PBOC set the daily fixing at 6.7150, 661 points weaker than the Reuters model estimate — the largest weak-side deviation since September 10 — and the second consecutive day of a weak-side fix.
Deputy Governor Zou Lan, speaking in Hong Kong, reiterated that China "lets the market play a decisive role in exchange-rate formation." Markets read the full package as clear discomfort with the pace of appreciation.
PIMCO's Zhang Zhiwei was blunter: "The PBOC sent an unambiguous signal that it is worried about the rapid yuan appreciation in October."
How did markets react?
Onshore yuan fell as much as 0.37% on the day, touching 6.6728 (weakest since October 23) and posting its largest single-day drop since May 15. The official close was 6.6765, 307 points weaker than the prior day.
Offshore yuan tracked the onshore move.
This reflects a short-term "message received" — but whether one day's pullback can break a 14-day one-way rally is a different question.
Is this move big enough to work?
Goldman estimates the hike will freeze roughly $20 billion in FX liquidity. China's monthly FX settlement volume runs at about $66 billion.
In plain terms = it is a $20 billion speed bump on a highway carrying $66 billion a month — noticeable, but unlikely to stop traffic.
The rally's core drivers are a widening trade surplus and steady corporate FX conversion demand. Forces pulling the other way — a record-wide US-China rate differential and expectations of continued Fed hikes — also remain. Whether the ratio hike can truly break one-way appreciation expectations is still unproven.
What else is left in the PBOC's toolbox?
Tools already deployed in 2026: in March the PBOC cut the FX risk-reserve ratio on forward sales from 20% to zero (lowering the cost of buying dollars); it repeatedly set weak-side fixings; and it expanded QDII (Qualified Domestic Institutional Investor) quotas twice — in March and August — to open more channels for capital outflows.
Historical precedent: in 2021 the PBOC raised the FX deposit reserve ratio twice (to 7% in June, 9% in December) to cool the post-pandemic yuan rally, then cut it back to 4% across three steps in 2022–2023.
This means → if appreciation continues, there is room to lift the ratio from 6% toward 7% or even 9% — the 2021 playbook has already been run once.
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