China moves to slow yuan gains
The People's Bank of China announced on November 3 that it would raise the foreign-exchange deposit reserve requirement ratio from 4% to 6%, effective November 15.
The move is estimated to withdraw approximately $24 billion in foreign-currency liquidity. Following a yuan appreciation of more than 5% this year, the onshore currency weakened to 6.6728 per dollar after the announcement.
The decision signals an effort to moderate rapid yuan appreciation and discourage one-sided currency expectations. Reduced foreign-exchange liquidity could ease upward pressure on the yuan. However, strong export earnings and China's trade surplus may continue to support the currency over the longer term.
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