China Raises Reserves to Steady Yuan

China's yuan weakened to its lowest level in more than two weeks on Wednesday as investors assessed a central bank decision intended to slow the currency's recent appreciation.

The People's Bank of China announced that financial institutions must increase the proportion of their foreign currency deposits held as reserves from 4% to 6%, effective 15 November. The decision marks the first increase in nearly five years and reverses part of an earlier relaxation designed to support the yuan during a period of currency weakness.

In Wednesday's trading, the onshore yuan fell to 6.6832 against the US dollar, its weakest level since 19 October. The higher reserve requirement effectively withdraws some dollar liquidity from the banking system, making foreign currency less freely available and easing upward pressure on the yuan. Reuters estimated that the adjustment could absorb approximately $24 billion. China's currency has appreciated more than 5% against the dollar this year, supported by strong exports, substantial trade surpluses and foreign currency conversions by companies.

The central bank's intervention reflects the difficult balance between maintaining exchange-rate stability and allowing market forces to determine the currency's value. A rapidly strengthening yuan can make Chinese exports more expensive internationally, potentially affecting manufacturers operating on narrow margins. However, excessive intervention can also complicate banking liquidity and investor expectations. The latest move suggests Beijing is seeking to prevent one-directional currency speculation rather than reverse appreciation entirely, while preserving flexibility as global monetary and trade conditions change.