The RMB exchange rate accelerates in appreciation, and the foreign exchange settlement and sales surplus narrows month-on-month — February Foreign Exchange Market Analysis Report

Ask AI · Why does the central bank cut the risk reserve requirement get triggered by the acceleration of RMB appreciation?

Analyst: Guo Tao (CITIC Securities Global Chief Economist)_

Securities Investment Advisory Business License No.: S1300520100001

Analyst: Liu Lipin (CITIC Securities Macroeconomic Analyst)

Securities Investment Advisory Business License No.: S1300521080001

Research report publication date: March 20, 2026

Abstract

In February, the foreign exchange market continued the strong trend from the end of the prior month—stronger U.S. dollar and even stronger RMB. The central parity rate kept strengthening, and onshore transaction prices saw faster appreciation. Signs of the pro-cyclical herd effect triggered the central bank’s “RRR cut.” That month, both bilateral and multilateral RMB exchange rates rose. Attention should be paid to the negative impact of the appreciation trend on export companies.

In February, due to the effect of the Spring Festival holiday, net cross-border capital inflows continued to slow down. However, under the goods trade item, net capital inflows still reached a new high for the same period in history, continuing to play the dominant role in cross-border capital flows. Under securities investment, capital turned to net outflows, while the decline in the size of overseas holdings of RMB-denominated bonds narrowed.

In February, the gap between supply and demand in the onshore and offshore foreign exchange market narrowed significantly quarter-on-quarter, which was related to the accelerating RMB appreciation and the resulting weakening of market conversion-to-RMB (结汇) intentions. But market participants—especially their forward RMB conversion intentions—still remained relatively strong, while motives for buying foreign exchange were relatively weak. The banks’ net foreign exchange position (banks’ settlement and sale/purchase difference) stayed at a high level.

Special topic: Further increase the share of RMB invoicing to avoid financial shocks to companies from FX volatility. In recent years, the share of cross-border RMB settlement in China’s cross-border trade has increased. But according to statistics by Boz et al. (2025), the share of cross-border trade invoiced in RMB is relatively high in a small number of countries, while the global share of RMB invoicing remains far below that of the U.S. dollar and the euro, and China’s share of cross-border trade invoiced in RMB is also significantly lower than its share of RMB settlement. To guard against potential financial shocks to export companies from RMB appreciation, it is necessary to continuously guide companies to further increase the share of RMB invoicing in cross-border trade.

Risk warning: Geopolitical risk exceeding expectations; major central banks adjusting monetary policy exceeding expectations; domestic economic recovery not meeting expectations.

Main text

On March 16, the State Administration of Foreign Exchange (SAFE) released February 2026 data on foreign exchange receipts and payments. Based on the latest data, we specifically analyze the operation of the onshore and offshore foreign exchange market in February as follows:

The foreign exchange market continued the “strong U.S. dollar/stronger RMB” trend from the end of the previous month, with attention on the negative impact of RMB appreciation on export companies

At the end of February, tensions in the Middle East and geopolitical developments intensified, prompting the U.S. dollar index to shift from consolidation to an upward move. It rose by 0.5% over the month to 97.6 and ended the prior streak of three consecutive monthly declines. Against the backdrop of a rebound in the U.S. dollar index, the RMB appreciation trend continued (see Chart 1). The RMB central parity rate kept strengthening and rose to 6.9228 at month-end, the highest since May 12, 2023. Onshore RMB exchange rates saw accelerated appreciation in transaction prices. After breaking above 7.0 at the end of last year, on February 12 the intraday value further broke above 6.90. After the Spring Festival holiday, it took only three trading days (February 24 to 26) for the highest level to rise from 6.9114 to 6.8310, setting a new high since April 17, 2023. On February 26, the deviation between the onshore spot exchange rate (the same as the onshore interbank market afternoon 4:30 transaction price, unless otherwise stated) and the central parity widened to -1.2%, which is the highest since the daily trading price floating range for the RMB against the U.S. dollar expanded from 1% to 2% on March 17, 2014 [1] (see Chart 2).

On February 25 and 26, accelerated appreciation of onshore RMB exchange rates coincided with a broadening of onshore and offshore FX trading volumes. Spot inquiry transaction volumes rose to 52.5 billion and 60.1 billion U.S. dollars respectively, far exceeding the level of 41.4 billion U.S. dollars in the average daily trading between February 2 and 24. This may indicate that RMB appreciation triggered the release of conversion-to-RMB (结汇) demand and that signs of a pro-cyclical herd effect emerged. On February 27, the People’s Bank of China announced that it would cut the FX risk reserve ratio for the forward sale of foreign exchange from 20% to 0 [2]. The signal effect of the policy adjustment, combined with the rebound effect of the U.S. dollar index, led to a slight pullback in the RMB exchange rate. At month-end, the onshore spot exchange rate fell to 6.8559, but it still appreciated by 1.35% versus the end of the prior month—its gain hit a new high since September 2024.

In February, the degree of deviation among the “three RMB rates” (spot onshore, central parity, and offshore) widened slightly. Among them, the onshore spot exchange rate was stronger than the central parity for the third consecutive month. The average daily deviation expanded from -0.49% last month to -0.54%, setting a new high since February 2014. Offshore relative to onshore spot exchange rates were generally stronger overall; the average daily deviation widened from -36 basis points last month to -38 basis points.

In February, the average onshore spot exchange rate rose from 6.9675 last month to 6.9085, the sixth consecutive month of appreciation. The average daily spot exchange rate for the quarter-on-quarter comparison lagging by 3 months and lagging by 5 months achieved appreciation for the 12th and 10th consecutive months, respectively. The gains were 2.9% and 3.1%, respectively, both setting new highs since March 2023 and May 2023 (see Chart 3).

In February, because non-U.S.-dollar currencies fell against the U.S. dollar overall, the RMB exchange rate index returned to an upward trend. The CFETS RMB exchange rate index, the RMB exchange rate index based on the reference BIS currency basket, and the RMB exchange rate index based on the reference SDR currency basket increased by 1.6%, 1.5%, and 1.7% to 98.6, 105.7, and 94.1 respectively. Among them, the CFETS RMB exchange rate index set a new high since April 2025, and both the BIS currency basket-based and SDR currency basket-based RMB exchange rate indices were new highs since March 2025.

During the month, the nominal effective exchange rate index for the RMB published by the Bank for International Settlements (BIS) continued the appreciation trend since August 2025. The effective exchange rate index that affects export competitiveness also continued the upward trend since July 2025. In February, it rose to 90.2 and rebounded 4.6% from the June 2025 low. As a result, since April 2022, the cumulative decline in the RMB’s real effective exchange rate narrowed from a maximum of 18.9% to 15.2% (see Chart 4).

The Spring Festival holiday effect led cross-border net capital inflows to continue slowing, and funds under securities investment turned to net outflows

In February, the banks’ surplus in foreign exchange receipts and payments on behalf of customers declined from 82.1 billion to 35.6 billion U.S. dollars from the previous month, but it remained a new high for the same period in history. By currency, the surplus in foreign-currency foreign exchange receipts and payments fell quarter-on-quarter by 37.9 billion to 60.2 billion U.S. dollars, which was the second-highest in history; the deficit in RMB foreign exchange receipts and payments increased by 8.6 billion to 24.6 billion U.S. dollars quarter-on-quarter. Together, the two accounted for 82% and 18% of the quarter-on-quarter decline in the banks’ surplus in foreign exchange receipts and payments on behalf of customers, respectively (see Chart 5).

By item, the surplus in foreign exchange receipts and payments for goods trade decreased quarter-on-quarter by 23.7 billion to 67.8 billion U.S. dollars, also reaching a new high for the same period in history. Foreign exchange receipts and payments for securities investment shifted from a surplus in the prior two months to a deficit of 11.0 billion U.S. dollars (see Chart 6). Together, the two accounted for 51% and 48% of the quarter-on-quarter decline in the banks’ surplus in foreign exchange receipts and payments on behalf of customers, respectively. Direct investment, service trade, income, and current transfers saw foreign exchange receipts and payments deficits that were relatively stable; quarter-on-quarter they increased by 3.3 billion, decreased by 2.4 billion, and decreased by 2.2 billion U.S. dollars, respectively.

During the month, the quarter-on-quarter narrowing of the surplus in foreign exchange receipts and payments for goods trade was because foreign exchange receipts decreased quarter-on-quarter by 64.3 billion U.S. dollars, which was larger than the 40.6 billion U.S. dollars decline in expenditures. In the same period, according to customs statistics, the scale of goods exports decreased quarter-on-quarter by 56.8 billion U.S. dollars, which was larger than the 25.2 billion U.S. dollars decline in import scale. Both conformed to seasonal patterns, reflecting the impact of the Spring Festival holiday effect. Among them, goods trade foreign exchange income and export scale were 290.1 billion and 299.9 billion U.S. dollars respectively, both setting new highs for the same period in history. Year-on-year, they increased by 4.4% and 39.6% respectively. Trade resilience supported goods trade continuing to play the dominant role in cross-border capital flows.

During the month, foreign exchange receipts under securities investment ended the monthly streak of three consecutive months of growth; they fell quarter-on-quarter by 80.1 billion to 228.3 billion U.S. dollars. This was less than the scale of foreign exchange payments of 239.3 billion U.S. dollars, but both remained at historically high levels. Average daily foreign exchange receipts and payments were 16.3 billion and 17.1 billion U.S. dollars respectively, both reaching new highs. This indicated that cross-border capital under securities investment continued to maintain a relatively high level of activity (see Chart 7). At the same time, as the dollar-onshore RMB swap points shifted to a downward move, the amount of RMB-denominated bonds held by overseas institutions continued to decrease for the tenth consecutive month, but the decline narrowed significantly. The size fell from the scale exceeding 100 billion yuan for three consecutive months previously to 30.4 billion yuan. Among that, holdings of interbank certificates of deposit decreased by 78.3 billion yuan; holdings of book-entry government bonds and policy bank bonds increased by 19.2 billion and 28.1 billion yuan respectively (see Chart 8).

The onshore and offshore FX supply-demand gap continues to narrow, but market participants’ forward RMB conversion intentions remain relatively strong; the motive to buy foreign exchange is relatively weak, and the pro-cyclical herd effect continues

In February, reflecting the onshore major FX supply-demand relationship, the banks’ net settlement and sale/purchase of foreign exchange using spot (including forwards and options; referred to here as banks’ settlement and sale/purchase difference) recorded a surplus for the twelfth consecutive month. The surplus narrowed for the second consecutive month. It fell from 111.9 billion yuan, the second-highest in history last month, by 44% to 62.7 billion U.S. dollars, still ranking ninth in history (see Chart 9). The average daily surplus fell quarter-on-quarter by 20% to 4.5 billion U.S. dollars, ranking third in history—slightly lower than the surplus average of 5.6 billion U.S. dollars in the prior two months. This indicated that the narrowing of the banks’ settlement and sale/purchase surplus mainly reflected the Spring Festival holiday effect.

During the month, the banks’ surplus in settlement and sale/purchase of foreign exchange on behalf of customers fell from 88.8 billion to 55.2 billion U.S. dollars, ranking eighth in history. The net settlement and conversion-to-RMB (結汇) amounts under forwards and options fell from 32.0 billion to 19.9 billion U.S. dollars. The banks’ own settlement and sale/purchase deficit widened from 8.9 billion to 12.4 billion U.S. dollars. The three factors accounted for 68%, 25%, and 7% respectively of the quarter-on-quarter decline in the banks’ surplus in settlement and sale/purchase on behalf of customers (see Chart 9).

During the month, after excluding amounts due under forward performance, the collection/settlement conversion exchange rate (收汇结汇率) fell for the second consecutive month, down 2.5 percentage points quarter-on-quarter to 56.4%. The payment/purchase exchange rate (付汇购汇率) rose by only 0.1 percentage points quarter-on-quarter to 54.9%. This shows that as RMB appreciation accelerated, the market’s conversion-to-RMB intention weakened while the motive to buy foreign exchange remained stable. But both the collection/settlement conversion exchange rate and the payment/purchase exchange rate were at the highest levels for the same period over the past three years and the lowest levels over the same period over the past four years. Moreover, the payment/purchase exchange rate was below the collection/settlement conversion exchange rate for the third consecutive month (see Chart 10). To eliminate the Spring Festival holiday effect, comparing market settlement and sale/purchase intentions in February during Spring Festival months across different years shows that this year’s February collection/settlement conversion exchange rate hit a new high over the past six years for the same period, while the payment/purchase exchange rate remained the lowest over the past four years for the same period (see Chart 11).

During the month, the cumulative amount of forward net RMB conversion that remained outstanding for banks’ on-behalf customers increased for the eighth consecutive month, reaching 107.0 billion U.S. dollars at month-end, a new historical high (see Chart 12). This mainly reflected relatively strong forward RMB conversion demand and further weakening forward foreign exchange purchase demand. The contracted scale for forward RMB conversion fell from 57.4 billion U.S. dollars, the second-highest in history last month, to 38.3 billion U.S. dollars. The forward RMB conversion hedging ratio fell by 1.5 percentage points quarter-on-quarter to 14.2%, though both remained at relatively high levels in recent years. The contracted scale for forward foreign exchange purchases decreased by 11.3 billion to 6.7 billion U.S. dollars quarter-on-quarter, and the forward foreign exchange purchase hedging ratio fell by 3.1 percentage points to 2.8%. Both indicators simultaneously refreshed the lowest levels since February 2020 (see Chart 13, 14).

Special topic: Further increase the share of RMB invoicing to avoid financial shocks from FX volatility to enterprises

As stated earlier, as of February, the average spot exchange rate lagging by 3 months and lagging by 5 months achieved appreciation for 12 consecutive months and 10 consecutive months respectively on a quarter-on-quarter basis. The appreciation magnitude also reached a new peak for this stage. Therefore, attention should be paid to the negative impact of RMB appreciation on export enterprises.

For a long time, it has been widely believed that appreciation is a good thing and depreciation is a bad thing. However, based on the foreign exchange gains and losses of non-financial A-share listed companies, in 2017 and 2020—years when RMB appreciation magnitude was relatively large—63.4% and 65.1% of listed companies, respectively, incurred foreign exchange losses. Meanwhile, foreign exchange gains and foreign exchange losses, when netted, resulted in net foreign exchange losses of 16.8 billion and 24.6 billion yuan RMB, respectively; in 2016 and 2022—years when RMB depreciation magnitude was relatively large—58.9% and 64.0% of listed companies, respectively, generated foreign exchange gains, totaling net foreign exchange gains of 5.4 billion and 45.1 billion yuan RMB, respectively (see Charts 15 and 16).

One common misconception about how exchange rate changes affect enterprises is equating using the local currency for settlement with invoicing in the local currency. In fact, “settlement currency” and “invoicing currency” are two different concepts. The former refers to the currency used when making the actual payment; it plays the role of a medium of exchange. The latter refers to the currency specified by both parties in the contract, used to calculate and settle their mutual creditor-debtor relationships; it plays the role of a unit of account. Even if enterprises use the local currency for settlement in cross-border activities (i.e., settling and receiving payments cross-border in the local currency), if the enterprise has receivables and payables, assets, or liabilities denominated in a foreign currency, then exchange rate movements may still bring unexpected losses to enterprises that record in the local currency—meaning they face so-called exchange rate risk.

China’s official sources do not provide RMB invoicing information. Research at home and abroad on RMB internationalization in the context of foreign trade mostly uses cross-border RMB settlement data, and some studies even substitute RMB settlement data for RMB invoicing data. Previously, some foreign scholars collected global trade invoicing currency data, but in the early stage it was limited to collecting invoicing data for major international currencies such as the U.S. dollar and the euro. The IMF and the ECB updated global trade invoicing currency data in 2022 [3] and 2025 [4], respectively. The latest dataset provides information on the import and export shares invoiced in the U.S. dollar, euro, RMB, and other currencies for 132 countries/regions during 1990–2023.

According to statistics by Boz et al. (2025), Russia and Mongolia have relatively prominent RMB invoicing shares in cross-border trade. In 2023, the RMB invoiced export shares were 26.3% and 31.2%, respectively, while the RMB invoiced import shares were 32.4% and 22.2%, respectively. Looking at the distribution of invoicing currencies in Russia’s cross-border trade, the RMB invoicing share has risen significantly since 2022, while the shares invoiced in the U.S. dollar and the euro have dropped sharply, reflecting the impact of escalating sanctions by the U.S. and Europe against Russia following the outbreak of the Russia-Ukraine conflict [5] (see Charts 17 and 18). However, in cross-border trade with countries and regions other than Mongolia and Russia, the RMB invoicing share is clearly much lower. In 2023, most countries’ and regions’ invoicing shares were concentrated around 1% (see Chart 19). In 2023, the dataset’s mean values for RMB invoiced export shares and import shares across all countries and regions were 1.0% and 1.3%, respectively—far lower than the shares of the U.S. dollar and the euro (see Chart 20).

If we assume that RMB invoicing exists only in bilateral trade with China, and further assume that the RMB invoicing share in cross-border trade of non-dataset countries and regions is comparable to that of dataset countries and regions, then Boz et al. (2025) estimate that the RMB invoicing share in China’s cross-border trade in 2023 was about 10%, which is clearly lower than the RMB settlement share. It should be noted that when Boz et al. (2025) calculated the RMB settlement share, they likely directly used currency composition data of foreign exchange receipts and payments handled by banks on behalf of customers. However, foreign exchange receipts and payments handled by banks on behalf of customers include not only trade-related data, but also other important channels of RMB inflows and outflows such as securities investment. This means the RMB settlement share calculated by Boz et al. (2025) is likely overestimated (see Chart 21). Recalculation based on data from the People’s Bank of China and the General Administration of Customs shows that the RMB settlement share in China’s cross-border trade in 2023 was about 26%, still significantly higher than the RMB invoicing share estimated by Boz et al. (2025).

For the fourth consecutive year, this year’s government work report set the tone of “maintaining basic stability of the RMB exchange rate at a level that is broadly consistent with economic fundamentals and equilibrium.” The policy goal remains to prevent excessive appreciation or depreciation of the RMB exchange rate and to provide a relatively stable monetary environment for domestic economic operations. However, compared with the FX environment in prior years when the RMB exchange rate was “down more than it rose,” the current stage needs greater attention and risk prevention regarding the negative shocks that RMB appreciation may bring to export enterprises. Guidance should be provided to further increase companies’ share of RMB invoicing in cross-border trade.

Although the internationalization level of the RMB still does not match traditional international currencies such as the U.S. dollar and the euro, in emerging markets and developing countries the RMB has become a dominant currency. These markets are key target regions for promoting cross-border RMB usage. To enhance the attractiveness of cross-border RMB use, it is recommended that financial institutions adhere to the “RMB-first” principle, and provide foreign-trade enterprises with comprehensive RMB financial services covering the full lifecycle and multiple dimensions. This would improve the facilitation level of cross-border RMB usage and help cultivate market participants’ habits of using the RMB. Of course, the selection of the invoicing currency fundamentally remains constrained by enterprises’ market bargaining power—enterprises with stronger bargaining power are more likely to secure favorable invoicing currency terms in contract negotiations. In recent years, as China’s industrial transformation and upgrading has proceeded steadily, the comparative advantages of export products have strengthened significantly. This provides an important foundation for increasing the RMB invoicing share. In the future, it is still necessary to further guide and encourage foreign trade enterprises to accelerate their shift from “winning on price” to “winning on quality,” and to support the sustained increase in the RMB invoicing share through industrial competitiveness.

Notes:

[1]

[2]

[3]Boz E, Casas C, Georgiadis G, et al. Patterns of invoicing currency in global trade: New evidence[J]. Journal of international economics, 2022, 136: 103604.

[4]Boz E, Casas C, Georgiadis G, et al. Patterns of Invoicing Currency in Global Trade in a Fragmenting World Economy[R]. International Monetary Fund, 2025.

[5]

Risk warning: Geopolitical risk exceeds expectations; monetary policy adjustments by major central banks exceed expectations; domestic economic recovery is not as expected.