New forex reserve rule set to rob smaller firms of hedge against yuan's fall

A reserve requirement introduced for banks trading currency forwards on behalf of clients and which takes effect on October 15 will make it impossible for many smaller mainland firms to hedge against the yuan’s devaluation, South China Morning Post reported, citing bankers and analysts. The requirement that banks hold 20% of the total value of forwards contracts – which lock in the currency’s exchange rate for future payments – for a year at zero interest means that banks “will have to cease most of the forward business, only retain it with core clients,” said one Chinese-based executive at a foreign bank.