Beijing seeks to halt the yuan’s slide as China’s currency hits a 17-month low against the dollar

• The People’s Bank of China is cutting the required ratio of foreign-currency holdings from 9% to 8%. 
• The move is meant to strengthen the yuan, and comes as the currency hits a 17-month low against the dollar.
• Last week, a Beijing official said the yuan’s price fluctuations are due to global market volatility.

China’s yuan has hit its lowest point against the dollar in 17 months, and Beijing is responding by cutting the amount of foreign currencies that banks are required hold.

Starting May 15, China’s financial institutions must hold 8% of their foreign exchange in reserve, down from the current 9% level, the People’s Bank of China said Monday. 

The reduction is meant to increase the supply of dollars and other foreign currencies onshore to strengthen the yuan.

Over the last five days, the yuan has lost 3% against the dollar, and stands as the worst performer among Asian currencies, Bloomberg data shows. Last week, the yuan notched its worst weekly drop against the dollar since 2015.

Ongoing COVID-19 disruptions have dragged on economic forecasts for China, while investors have rushed back to the dollar amid rising US bond yields and an increasingly hawkish Federal Reserve.

A spokesperson from China’s foreign exchange bureau said recent fluctuations in the yuan are due to global market volatility, but the yuan remains basically stable. 

“With strengthened resilience in the foreign exchange market, China has the foundation and conditions to adapt to the [US] Fed’s policy adjustment,” Wang Chunying, a spokesperson of the State Administration of Foreign Exchange, said at a Friday briefing. She noted that the yuan’s recent swings have been “stable and healthy.”