China’s Central Bank Tries to Ease Pressure on Currency

China’s central bank has cut the amount of foreign currency banks need to hold in reserve.

The move is an attempt to boost the yuan, which has tumbled this year as the economy has faltered and the central bank has cut interest rates. Lowering interest rates often puts pressure on a country’s currency, since it makes assets elsewhere look more attractive.

The People’s Bank of China said on Friday it will lower the foreign-exchange reserve ratio to 4% from 6%, increasing the supply of dollars in the Chinese market. The move will free up around $16 billion of foreign exchange currently held with the central bank, according to estimates from Citigroup.

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