On February 27th, the People's Bank of China announced that in order to promote the development of the foreign exchange market and support enterprises in managing exchange rate risks, the foreign exchange risk reserve ratio for forward foreign exchange sales business will be reduced from 20% to 0 starting from March 2nd, 2026. Industry experts told reporters that this move can reduce the cost of forward foreign exchange purchases for enterprises, increase their enthusiasm for carrying out foreign exchange hedging in the direction of foreign exchange purchases, and also help support enterprises to manage exchange rate risks reasonably by using foreign exchange derivative products. It has been nearly three and a half years since the last adjustment. In September 2022, the People's Bank of China raised the foreign exchange risk reserve ratio for forward foreign exchange sales business from 0 to 20%. The aforementioned industry experts stated that the current reduction in the reserve requirement ratio for forward foreign exchange sales risks is essentially a reasonable exit from previous measures, promoting the return of foreign exchange policies to neutrality. When the reserve ratio is 20%, banks need to freeze $20 of interest free funds from the People's Bank of China for every $100 forward foreign exchange transaction, which will ultimately increase the price of the enterprise's forward foreign exchange purchase. ”Wen Bin, Chief Economist of Minsheng Bank, told reporters that the foreign exchange risk reserve ratio for forward foreign exchange sales business has been reduced from 20% to 0, which means that banks do not need to freeze funds for this, and the cost of forward foreign exchange purchases will also be reduced accordingly. Previously, Zou Lan, Vice Governor of the People's Bank of China, announced a package of policy measures at a press conference held by the State Council Information Office in January, including "encouraging financial institutions to improve their exchange rate hedging services". The industry experts mentioned above stated that the current reduction in the reserve ratio for forward foreign exchange risk will help financial institutions provide cost-effective exchange rate risk management products for enterprises, and is also a concrete manifestation of implementing a package of policies. By 2025, the hedging ratio of enterprises will increase to 30%, and the proportion of RMB settlement in goods trade will also increase to nearly 30%. This means that 60% of enterprises are less affected by exchange rate risks in foreign trade exports. In the future, these two ratios are expected to further increase, which will also be conducive to maintaining exchange rate stability. The People's Bank of China stated that the next step will continue to guide financial institutions to optimize their exchange rate hedging services for enterprises, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. In the foreseeable future, the external situation will be complex and volatile, and there will still be significant uncertainty in the trend of the RMB exchange rate. Foreign trade enterprises should do a good job in hedging the exchange rate. ”The aforementioned industry experts further stated that in the future, as the market plays a greater role in the formation of exchange rates, the RMB exchange rate may fluctuate in both directions. Enterprises and financial institutions should not blindly follow the trend and gamble on exchange rate movements. They should adhere to the concept of exchange rate risk neutrality and do a good job in exchange rate risk management. (New Society)