The People’s Bank of China, the central bank of the Chinese Communist Party, announced on Friday (February 27) that it would reduce the deposit reserve requirement for Renminbi forward contracts by 20%. This move aims to lower the cost for traders betting on the depreciation of the Renminbi and slow down the rapid appreciation of the currency.
Beijing has been strictly controlling the Renminbi exchange rate, leaning towards maintaining Renminbi depreciation in recent years to boost exports. In the past few months, following a record $1.2 trillion trade surplus in 2025, economists both domestic and abroad have been urging for the Renminbi to appreciate.
Since the beginning of 2026, the Renminbi exchange rate against the US dollar has risen by nearly 2%, surprising many analysts with the speed of its appreciation.
On Friday, the People’s Bank of China set the Renminbi central parity rate lower than market expectations. The central bank usually allows the Renminbi’s daily exchange rate to fluctuate within 2% of the central parity rate as a way to manage the currency.
On that day, the Renminbi fell by 0.2% against the US dollar to 6.85.
The Chinese authorities frequently intervene in the market to curb any market volatility they deem imbalanced or attracting speculative funds.
To slow down the pace of Renminbi appreciation, the People’s Bank of China announced on Friday the reduction of the deposit reserve requirement for Renminbi forward contracts. The last adjustment to this tool was in 2022 when the Renminbi depreciated by over 7% against the US dollar.
Reducing the deposit reserve requirement for Renminbi forward contracts from 20% to 0 means that banks no longer need to freeze interest-free reserves of enterprises. This results in a decrease in the cost of betting on Renminbi depreciation or at least hedging against appreciation.
With the reduced costs, more enterprises and institutions willing to engage in forward buying of US dollars / selling Renminbi may help partially offset the “unilateral appreciation pressure” of the Renminbi, thereby achieving the effects of “slowing down appreciation speed” and “stabilizing bidirectional fluctuations.”
Wee Khoon Chong, Senior Market Strategist for the Asia-Pacific region at BNY Mellon Bank in New York, pointed out that this move has limited impact on the foreign exchange market as there is currently not strong speculation for Renminbi depreciation.
Because Chinese exporters tend to convert more US dollar income back into Renminbi for employee bonuses and wages before the Chinese New Year holiday in December and January, the Renminbi tends to strengthen seasonally at the beginning and end of each year.
Some analysts also suggest that Beijing particularly hopes for Renminbi strength before the end of March, ahead of US President Trump’s visit to China, to ease potential tensions in currency negotiations between China and the United States.
Chandresh Jain, Emerging Markets Interest Rate and Foreign Exchange Strategist at BNP Paribas Bank in France, stated: “Investors believe that China will not deliberately depreciate the Renminbi before the meeting. They may make efforts to showcase Renminbi strength.”