The local currency also looks set for the biggest annual loss since 1994, when China unified official and market exchange rates. The rapid yuan declines prompted the People's Bank of China (PBOC) to lower the amount of foreign exchange financial institutions must hold as reserves to rein in weakness. The PBOC has been setting firmer-than-expected daily yuan midpoint fixings since late August to prevent excess yuan weakness, as the onshore spot yuan can only trade in a 2% narrow range around the midpoint. The central bank adjusted the methodology a few times before suspending it in October 2020. "The yuan exchange rate level itself is not the most important, the nature of the issue is whether China's cross-border capital flows remain stable," said Zhong Zhengsheng, chief economist at Ping An Securities.

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