The People’s Bank of China will require banks trading currency forwards to keep the US dollar equivalent of 20% of clients’ currency forwards in dollar reserves, which must be held for a year at no interest, Reuters reported, citing unnamed sources. The move, which will go into effect in October, will restrict bets against the yuan’s value by making it more expensive for banks to execute forwards contracts that lock in the exchange rate for the purchase of US dollars on a future date, thereby allowing clients to hedge against the risk of a further fall by the yuan in the wake of the central bank’s sudden devaluation on August 11.
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