China’s Central Bank Is Seeking to Curb the Yuan’s Rapid Appreciation

On Friday, February 27, the regulator announced the removal of a 20 percent reserve requirement on forward contracts to sell the yuan. The move makes it cheaper for traders to bet on a weakening of the Chinese currency. The yuan is tightly managed by the state, and in recent years authorities have favored a weaker exchange rate to support exports. In recent months, however, calls have grown both at home and abroad to allow the currency to strengthen, after China posted a record trade surplus of $1.2 trillion in 2025.

Since the start of the year, the yuan has risen by nearly 2 percent against the dollar, making it one of Asia’s strongest currencies. The pace of the gains has surprised many analysts. “They are taking steps to slow the momentum,” said Andrew Tilton, chief economist for the Asia-Pacific region and head of emerging-markets research at Goldman Sachs. “They do not want to create a persistent one-way move for the market.”

The People’s Bank of China, which manages the exchange rate through a daily fixing with a permitted deviation of up to 2 percent in either direction, set the midpoint weaker than market expectations on Friday. The regulator said it would “continue to guide financial institutions” toward “maintaining the basic stability of the yuan at a reasonable and balanced level.” By the end of the day, the currency had weakened by 0.2 percent against the dollar—to 6.85 yuan.

Chinese authorities regularly intervene in the foreign-exchange market when they judge movements to be distorted or likely to attract speculative capital flows.

The reserve requirement that the central bank scrapped on Friday was introduced in 2022—a period when the yuan fell by more than 7 percent against the dollar and authorities were seeking to contain downward pressure on the currency. According to Becky Liu, head of Greater China strategy at Standard Chartered, the removal of the mechanism signals that “the People’s Bank of China no longer sees the need to maintain precautionary measures” against further weakening.

BNY’s senior strategist Wee-Khoon Chong said the impact of the move on the exchange rate would be limited, as there is little meaningful demand in the market for bets against the yuan. The currency’s early-year strength was largely anticipated—Chinese exporters traditionally convert dollar revenues into yuan more actively in December and January as they prepare to pay bonuses and wages ahead of the Lunar New Year. This pattern regularly produces a temporary firming of the yuan around the turn of the year.

However, as Chandresh Jain, a strategist for emerging-market rates and currencies at BNP Paribas, noted, the market did not expect the rally to persist beyond the end of the holiday period on February 23. Chong of BNY added that the current rapid appreciation represents a delayed reaction to last year’s currency dynamics. “In 2025, [the authorities] deliberately kept [the yuan] at an exceptionally weak level, and are now moving toward normalization,” he said.

Analysts also note that Beijing is particularly keen on a stronger exchange rate ahead of a visit by US President Donald Trump to China in late March—a move that could ease tensions over currency issues during talks between the two powers. “Investors believe China will not want to signal currency weakness ahead of this meeting. Instead, the authorities will try to show that the exchange rate is strengthening,” Jain said.

The yuan has also been supported by the return of foreign capital to China’s equity market. That process gathered pace in the fourth quarter of last year amid rising investor interest in the country’s technology and AI companies.