China's banks must set aside more of their dollar deposits from Saturday, Nov. 15, when the People's Bank of China raises the reserve requirement ratio on foreign currency deposits to 6% from 4%. CITIC Securities estimates the change will freeze roughly $20 billion to $25 billion of foreign currency liquidity in the banking system, a deliberate squeeze meant to slow the yuan's climb.

For investors across Asia, the step is the clearest signal yet that Beijing wants a gentler path for the currency. A yuan that rises too quickly squeezes China's exporters and tightens conditions for regional competitors priced against it; a central bank leaning against the move tells fund managers how much appreciation policymakers will tolerate heading into 2027.

The PBOC announced the increase on Tuesday, Nov. 3, saying the move was aimed at "strengthening foreign exchange liquidity management for financial institutions," according to China Daily. It is the first increase in the ratio in nearly five years, Xinhua reported.

Why the PBOC is pushing back on the yuan

The currency had been running hot. The yuan gained a cumulative 4.2% against the dollar in the first nine months of 2026, according to Xinhua, and the pace picked up in October. The onshore rate strengthened for 14 consecutive trading sessions starting Oct. 14 and reached about 6.64 per dollar on Monday, Nov. 2, China Daily reported.

The driver is trade. China's goods trade surplus hit a record $938.1 billion in the first nine months of the year, up from $726.2 billion a year earlier, Qatar Tribune reported, citing agency data. Domestic banks bought $2.38 trillion of foreign currency from clients in settlement over January to September, up 28.3% from a year earlier, while their sales of foreign currency rose 10.8% to $1.98 trillion. October's figures pushed the surplus further, as Capital Times reported in its look at China's October exports and imports.

In a Tuesday research note, CITIC Securities described a loop in which expectations of a stronger yuan prompted exporters to convert dollar earnings in a rush, which in turn sped up the currency's gains. The brokerage argued that the central bank moved before those expectations became "self-reinforcing," according to the Qatar Tribune report. Wen Bin, chief economist at China Minsheng Bank, made a similar point to Xinhua, saying the higher ratio should help balance supply and demand for foreign exchange.

How markets reacted

The announcement had an immediate effect. The onshore yuan closed at 6.6765 per dollar at 4:30 p.m. on Nov. 3, 307 pips weaker than the previous session, Xinhua said. Reuters reported the move was on track to be the currency's largest one-day drop against the dollar in six months. By midday on Wednesday, Nov. 4, the onshore rate was still trading weaker than 6.68.

Even after that pullback, the yuan was up about 4.3% for the year, according to the Qatar Tribune report.

Analysts read the step as a brake rather than a reversal. Lillian Li, a vice president at Moody's Ratings, said in a note that the measure showed policymakers were uneasy with the speed of the gains and that it should moderate rather than reverse the appreciation, given strong export demand. Xu Ying, chief analyst at Orient Futures in Shanghai, said exporters were likely to keep converting dollars at a high rate into year-end, but that the higher ratio should partly curb herd behavior.

For exporters, the change offers some relief. Kevin Li, a Shanghai textile exporter with mainly U.S. clients, told reporters that most of his contracts were signed when the yuan traded weaker than 7 per dollar and that he had paused converting dollars. "Every US dollar FX settlement means a loss for me now," he said.

A familiar tool, used in reverse

The foreign currency reserve ratio sets the share of dollar and other foreign currency deposits that banks must park with the central bank. Raising it reduces the dollars banks can lend or sell onshore, which tends to support the dollar against the yuan.

The PBOC has used the lever in both directions. It raised the ratio twice in 2021, to 9%, when the yuan was also strengthening, and then cut it three times in 2022 and 2023 to 4% as the currency weakened, according to Xinhua.

This is the second time in 2026 the bank has acted to temper the rally. In late February it scrapped a risk reserve requirement on foreign exchange forward contracts, a change intended to encourage companies to buy dollars, the Qatar Tribune report said. In October, the PBOC said its focus was on preventing sharp short-term swings in the exchange rate and that it does not have a preset target level, according to Xinhua.

The next reference points for markets are the daily central parity fixings after the higher ratio takes effect on Nov. 15, and China's foreign exchange settlement data for October, which will show whether exporters slowed their dollar sales after the announcement.