• CNY/USD was trading at 6.8513 at one stage on Monday
  • This comes after the PBOC re-introduced a 20% reserve requirement
  • The bank says this is not capital control; it merely wants to avert macro-financial risks

According to The China Foreign Exchange Trade System (CFETS), the USD strengthened by 191 basis points against the Chinese yuan earlier on Monday to reach 6.8513. This comes after it traded at 6.7942 against the USD on Thursday and at 6.8322 on Friday.

This is the lowest level the yuan has traded at since May 31, 2017, according to CFETS data.

This follows the central bank adjusting the forward forex risk reserve requirement ratio on Friday. The adjustment became effective today.

The country’s central bank announced on Friday that financial institutions must adhere to a 20% reserve requirement ratio moving forward. A similar requirement was in place until last September before being scrapped.

In a statement, The People’s Bank of China (PBOC) said that the decision was aimed at strengthening the judicious running of financial institutions and to avert macro-financial risks. They added that it was not intended as an administrative measure, nor was it a form of capital control.

The bank will also announce counter-cyclical adjustments from time to time based on the current market conditions in an attempt to ensure the stability of forex markets.

In the Chinese spot forex market, the yuan is not allowed to deviate by more than 2% from the central parity rate on any specific trading day.

The yuan’s central parity rate against the USD is calculated every business day by taking the weighted average of the prices on offer from different market markers before the interbank market opens for the day.

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