In sign of growing concern with currency’s strength, China cuts cost to short yuan
Removal of reserve rule for FX forward trading sends yuan down on Monday
Financial institutions no longer need to set aside cash when buying foreign exchange for clients through currency forwards, Chinese state-owned Financial News reported on Monday, citing a notice from the People’s Bank of China.
The requirement, introduced in August 2015 amid wave of capital outflows, forced banks to hold 20% of sales at zero interest for a year.
Additionally, the PBoC has also removed a reserve requirement for yuan deposited onshore by overseas financial institutions.
The sudden shift is a clear sign that the yuan’s continued strength has become a concern for authorities wary of any impact a prolonged rally might have on exports.
The currency was down as much as 0.78% Monday morning after the new policy was announced.