Why is the Chinese Yuan falling today?

The Chinese Yuan fell against the dollar on Tuesday after the People’s Bank of China announced it would raise the foreign exchange deposit reserve requirement ratio by 2 percentage points, from 4% to 6%, effective November 15, 2026.

The yuan’s USDCNY pair rose 0.3% to 6.6705 yuan. Tuesday’s reserve hike was viewewd as a direct policy intervention aimed at cooling the yuan’s sustained rally. The PBOC stated the measure was intended to strengthen the management of foreign exchange liquidity within financial institutions, and analysts widely interpreted the move as a signal that Beijing has grown uncomfortable with the pace of yuan appreciation, which had pushed the currency to its strongest level against the dollar in more than four years.

The mechanism behind the move is straightforward: by requiring banks to hold a larger share of their foreign currency deposits in reserve, the PBOC reduces the volume of dollars available for conversion into yuan, thereby suppressing demand-side pressure on the currency.

The adjustment is estimated to withdraw approximately $24 billion from the financial system, and it reverses the PBOC’s prior decision in September 2023 to lower the same ratio — a move that had been made at the time to stem yuan losses.