China raises foreign-currency reserve requirement to 6 percent as new rule takes effect

China's higher reserve requirement for foreign-currency deposits took effect on Sunday, 15 November. Financial institutions must now keep 6 percent in required reserves, up from 4 percent. The People's Bank of China announced the two-percentage-point increase on 3 November as a measure to strengthen management of foreign-exchange liquidity.

The change concerns foreign-currency reserves held by financial institutions. It is not an announcement that the reserve requirement for ordinary renminbi deposits has risen to 6 percent, nor is it a change in a household savings interest rate. Keeping the type of reserve requirement clear is important because the measure works on the availability of foreign currency rather than directly setting domestic borrowing costs.

A measure aimed at currency-market balance

Requiring banks to set aside a larger share reduces the foreign currency available for other uses in the financial system. The intended effect is to ease appreciation pressure on the renminbi and discourage expectations of continuing gains from reinforcing themselves. That is a policy objective, not a guarantee of a particular future exchange rate.

A review published by the Bank of Finland on 13 November described the decision as a limited withdrawal of foreign-currency liquidity intended to restrain appreciation. It noted that the requirement had last been increased during a period of renminbi strength in 2021, before being reduced in 2023 as the currency weakened. The new level therefore reverses part of an earlier easing in this particular instrument.

The immediate development is implementation of the previously announced rule. Market reactions and the direction of the currency will still depend on demand for foreign exchange and broader financial conditions; Sunday's effective date does not by itself establish an exchange-rate outcome.