China's central bank move surges yuan against US dollar

The yuan surged against the US dollar on Friday after China's central bank imposed a 20 percent reserve requirement ratio on the trading of foreign-exchange forward contracts.

The offshore yuan strengthened by more than 500 points to 6.8292 against the US dollar. The onshore spot exchange rate also rose by more than 200 points to 6.83 during trading.

Under the new requirement, announced on Friday on the central bank's website, banks in Hong Kong and other major hubs outside of the Chinese mainland will pay more if they sell dollars to clients using currency forwards.

The move is under the central bank's macro prudential regulatory framework, to ease exchange market vulnerabilities, other than a government intervention measure or capital control, according to a central bank spokesperson.

The foreign exchange rate market has shown some fluctuations recently, due to the Sino-US trade friction and changes in the international financial market, said the spokesman. "The move is to prevent macro financial risks and enhance stable operation of financial institutions."

The People's Bank of China, the central bank, cut the reserve requirement to zero in September 2017. The ratio was initially set in October 2015, as a tool to prevent large exchange rate fluctuations.