Why is the Chinese Yuan falling today?

The Chinese Yuan experienced a decline against the US dollar on Tuesday after the People's Bank of China (PBOC) announced a 2 percentage point increase in the foreign exchange deposit reserve requirement ratio, raising it from 4% to 6% starting November 15, 2026. The yuan's value against the dollar rose to 6.6705 yuan. This policy move was interpreted as an effort to curb the yuan's ongoing appreciation and manage foreign exchange liquidity in financial institutions.

Analysts believed it signaled Beijing's discomfort with the rapid yuan appreciation, which had seen the currency reach its strongest level against the dollar in over four years. The PBOC's action works by requiring banks to hold a larger portion of their foreign currency deposits as reserves, thus decreasing the dollars available for conversion into yuan and reducing demand for the currency.

This adjustment is expected to remove around $24 billion from the financial system, reversing a previous decision made in September 2023 to lower the same ratio aimed at curbing yuan losses.