What can China do to slow down its rising currency?

Published Sun, Mar 1, 2026 · 10:00 AM

[HONG KONG] China’s renminbi is surging against the US dollar, boosted by booming exports and aided by falling US interest rates and the wobbly greenback.

The renminbi strengthened 4.4 per cent last year in its biggest annual gain since 2020, and has firmed about 2 per cent so far in 2026, hovering near three-year highs.

China’s central bank moved to slow the pace of renminbi appreciation on Feb 27, scrapping risk reserves requirements for forex forward contracts in a move that would encourage US dollar buying.

The People’s Bank of China (PBOC) may deploy additional measures to prevent the renminbi from appreciating too quickly, analysts say.

Here are the tools at its disposal:

FX requirements ratio

The PBOC said it would scrap the 20 per cent reserves requirements for forex forward contracts, starting on Monday (Mar 2).

The move would reduce the cost of US dollar buying, and reverses a decision in September 2022 to raise the risk reserve requirements to stem the renminbi’s rapid losses and capital outflows.

“It sends a clear policy signal that regulators want to prevent excessive renminbi appreciation, which will help stabilise market expectations,” said Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating.

Next, the PBOC could raise outright the amount of foreign exchange that financial institutions must hold as reserves, which would require US dollar buying and tighten onshore US dollar liquidity – slowing renminbi gains. It is currently at 4 per cent, having been reduced from 6 per cent in 2023 as a measure to try and stem renminbi weakness.

Counter-cyclical factor in renminbi’s daily guidance fix

Since December, the central bank has been setting its daily renminbi official guidance at levels weaker than market projections, signalling its attention to slow the pace of renminbi appreciation.

The gap has widened this week to record levels, signifying the PBOC’s growing discomfort with the renminbi’s rise and its strong intent to manage market expectations.

State bank dollar buying

China’s major state-owned banks bought US dollars in the onshore spot market and held them in an unusually strong effort to rein in renminbi strength, Reuters reported in December.

The lenders did not appear to recycle the US dollars into the swap market, likely aimed at tightening US dollar liquidity and so raising the cost of long renminbi bets.

Although the PBOC itself wasn’t seen directly in the market, the state banks could have been acting on behalf of the central bank, said Brad Setser, a currency expert at the Council on Foreign Relations, in a recent blog post.

“All the activity is with the state banks,” he noted estimating a “nearly unprecedented” level of backdoor intervention in December.

Verbal guidance

PBOC officials frequently make public statements to reaffirm its commitment to keep the renminbi “basically stable”, and warn against the risk of currency overshooting.

The central bank has also repeatedly urged market participants to use derivatives to hedge against currency risks, rather than making one-way bets on the renminbi.

Direct intervention

In extreme cases, the PBOC can directly buy and sell foreign currencies in the market to influence exchange rates.

During the 2015-16 China market crash, the PBOC sold US dollars in the market to stablize a slumping renminbi.

In recent years, China’s central bank has refrained from direct intervention, which is evidenced by its relatively stable foreign currency reserves. REUTERS