In March, amid escalating US-Iran-Israel conflict and Middle East instability, the US dollar index strengthened while non-US currencies broadly weakened. However, the RMB central parity rate experienced narrow fluctuations, with both onshore and offshore spot rates registering only slight declines. The RMB exchange rate index accelerated its upward trend.
Cross-border capital flows shifted from a five-month net inflow to a net outflow in March, primarily due to foreign investors reducing holdings of RMB-denominated assets and accelerated growth in goods trade imports. Driven by goods trade and securities investment, the scale of RMB-denominated external payments surged sharply, with the share of RMB in external receipts and payments hitting a record high.
The domestic foreign exchange supply-demand gap continued to narrow in March, mainly attributable to increased foreign exchange purchase demand from goods trade and securities investment. However, market participants' spot foreign exchange purchase motivation remained generally stable, while their willingness to settle foreign exchange increased. The foreign exchange risk reserve policy, effective from the beginning of the month, had an immediate impact, with market demand for forward foreign exchange purchases rising significantly.
Topic: What Constitutes a Safe-Haven Asset? First, a distinction must be made between safe-haven assets and safe assets; while they overlap, they are not identical. Second, the effectiveness of an asset as a safe haven during market turbulence depends on the nature of the shock and the degree of a country's involvement, among other factors. Historically, the Japanese yen's safe-haven effectiveness has been relatively stable, while that of gold and the US dollar has varied considerably. Third, following the outbreak of the US-Iran-Israel conflict in late February, the US dollar emerged as the sole asset demonstrating safe-haven attributes, primarily reflecting the receding expectations for monetary easing and the impact of liquidity shocks. Finally, the safe-haven attributes of RMB bonds should be viewed rationally.
On April 15, the State Administration of Foreign Exchange released foreign exchange receipt and payment data for March 2026. An analysis of the domestic foreign exchange market's performance in March, based on the latest data, is as follows:
US Dollar Strengthens, Non-US Currencies Weaken, RMB Exchange Rates Converge In March, driven by the US-Iran-Israel conflict and Middle East turmoil, the US dollar index rose by 2.3%, its highest monthly gain since August 2025. The Swiss franc, euro, British pound, and Japanese yen depreciated against the US dollar by 3.8%, 2.2%, 1.9%, and 1.7%, respectively. During the same period, the RMB demonstrated notable resilience: the central parity rate fluctuated within a narrow range, rising to 6.9194 by month-end for a cumulative increase of 0.05%, marking the sixth consecutive month of appreciation. The onshore spot rate (the 4:30 PM trading price in the domestic interbank foreign exchange market) and the offshore spot rate depreciated only modestly, by 0.76% and 0.39% cumulatively, respectively.
The average daily deviation of the onshore spot rate from the central parity narrowed from -0.5% the previous month to -0.1% in March. The offshore spot rate was generally weaker than the onshore rate, with the average daily deviation shifting from -38 basis points the previous month to +27 basis points. The average daily trading volume for spot inquiries in the interbank market reached a record high of $50.7 billion, up 14% month-on-month. This was mainly due to a significant increase in foreign exchange trading volume triggered by the weakening of the RMB at the beginning of the month.
From March 2 to 4, the onshore spot rate fell from 6.8559 at the end of February to 6.9120. During this period, the spot inquiry trading volumes were $60.5 billion, $64.5 billion, and $71.4 billion, ranking as the 11th, 4th, and highest daily volumes on record, respectively. Subsequently, as the RMB exchange rate entered a phase of fluctuation, foreign exchange trading volume noticeably contracted. The average daily trading volume from March 5 to 31 was $48.3 billion, 26% lower than the average from March 2 to 4, indicating an overall stabilization of market expectations.
The average onshore spot rate in March was 6.8958, appreciating for the seventh consecutive month. The average spot rate on a 3-month lagged month-on-month basis appreciated for the thirteenth consecutive month, while the average on a 5-month lagged basis appreciated for the eleventh consecutive month, with increases of 2.1% and 3.3%, respectively. The latter reached its highest level since May 2023, suggesting an increasing financial tightening impact of RMB appreciation on exporting enterprises.
As the RMB's performance was significantly stronger than other major non-US currencies in March, the RMB exchange rate index continued the appreciating trend from the previous month, with the pace of appreciation accelerating noticeably. The CFETS RMB Index, the BIS basket RMB index, and the SDR basket RMB index rose by 2.3%, 2.4%, and 1.2% cumulatively, respectively. The increases in the first two were the highest monthly gains since October 2023.
The nominal and real effective exchange rate indices for the RMB released by the Bank for International Settlements (BIS) appreciated for the eighth and ninth consecutive months, respectively. The nominal effective exchange rate index rose 2.2% month-on-month to 111.0, the highest since November 2022. The real effective exchange rate index increased by 1.2% month-on-month to 91.5, the highest since March 2025, rebounding 6.2% from the low in June 2025. This narrowed the cumulative decline in the RMB's real effective exchange rate since April 2022 from a peak of 18.9% to 14.7%.
Cross-Border Capital Flows Turn to Net Outflow, Driven by Foreign Reduction in RMB Assets and Faster Import Growth; RMB Share of External Payments Hits Record High In March, banks' foreign-related receipts and payments on behalf of clients shifted from a five-month consecutive surplus to a deficit of $32.1 billion. By currency, the surplus in foreign currency-related receipts and payments narrowed for the third consecutive month, dropping from the second-highest historical level of $60.2 billion the previous month to $10.7 billion, the lowest since August 2024. RMB-denominated external receipts and payments recorded a deficit for the third consecutive month, widening from $24.6 billion the previous month to $42.8 billion, the fifth-highest deficit on record. Foreign currency and RMB accounted for 73% and 27% of the decline in the bank client foreign-related receipt/payment balance, respectively.
By item, the deficit in securities investment-related receipts and payments increased from $11.0 billion the previous month to $53.2 billion, the second-highest on record. The surplus in goods trade-related receipts and payments narrowed for the third consecutive month, falling from $67.8 billion the previous month to $50.7 billion, the lowest since July 2024. These two items contributed 62% and 25%, respectively, to the decline in the bank client foreign-related receipt/payment balance. Deficits in income and current transfers, direct investment, and services trade remained relatively stable, increasing month-on-month by $5.8 billion, $1.6 billion, and $1.4 billion, respectively.
The expansion of the securities investment-related receipt/payment deficit in March was mainly due to accelerated growth in external payments. Under the securities investment account, external income and expenditure increased month-on-month by $101.0 billion and $143.2 billion to $329.3 billion and $382.5 billion, respectively. Both the month-on-month increases and absolute levels reached record highs, reflecting a significant rise in cross-border securities investment activity.
In March, the holdings of RMB bonds in China by overseas institutions decreased for the eleventh consecutive month, with the decline re-exceeding 100 million yuan, widening from 30.3 billion yuan the previous month to 134.2 billion yuan. Book-entry government bonds were the main contributor, as overseas institutions' holdings shifted from an increase of 19.2 billion yuan the previous month to a decrease of 52.6 billion yuan, the largest decline since August 2025.
Against the backdrop of high global risk aversion, emerging market equity assets experienced large-scale foreign selling. Data from the Institute of International Finance (IIF) showed that foreign investors withdrew $70.3 billion from emerging market assets, the largest monthly outflow since the market plunge triggered by the COVID-19 pandemic in March 2020, contrasting sharply with the inflow trends of the previous two months. Outflows from emerging market equities (particularly Asian equities) amounted to $56.0 billion, the largest withdrawal in at least 20 years and the primary source of the capital outflow. Chinese equities saw a shift from a net inflow of $5.2 billion the previous month to a net outflow of $2.6 billion, reverting to net outflow after three months.
The narrowing of the goods trade-related receipt/payment surplus in March was primarily due to stronger-than-expected growth in goods imports. Goods exports increased 7.1% month-on-month to $321.0 billion, while imports grew 29.1% to $269.9 billion, a record high. Classified by the Harmonized System (HS), imports of "Machinery and electrical equipment, sound recorders" (HS Section XVI) increased 39% month-on-month to $97.1 billion, with the share of imports from South Korea rising to 18.9%, both hitting record highs, reflecting the recovery in the global tech industry cycle. Against the backdrop of falling precious metal prices, imports of "Pearls, precious metals" (HS Section XIV) rose to $29.8 billion, setting a new record, possibly indicating sustained strong domestic investment demand for precious metals.
The RMB settlement amount for goods trade in March increased 51.4% month-on-month to $211.5 billion, accounting for 35.8% of the total goods trade import and export value, a record high. This may be related to increased demand for RMB settlement in the goods import process. Affected by this, coupled with accelerated cross-border capital outflows under the securities investment account, the scale of RMB-denominated external payments by banks on behalf of clients surged in March, increasing by $170.5 billion month-on-month to $494.8 billion, a new record high. During the same period, the share of RMB in banks' client-related external receipts and payments rose to 56.4%, while the share of the US dollar fell to 39.8%, dropping below 40% for the first time.
Domestic Foreign Exchange Supply-Demand Gap Continues to Narrow, Driven by Increased FX Purchase Demand from Goods Trade and Securities Investment; Market Participants' Spot FX Purchase Motivation Stable, Settlement Willingness Rises; FX Risk Reserve Policy Effective In March, the banks' foreign exchange settlement and sales position (including forwards and options), which reflects the primary domestic foreign exchange supply-demand relationship, recorded a surplus for the thirteenth consecutive month. However, the surplus narrowed for the third consecutive month, decreasing by 66% month-on-month to $21.6 billion.
Within this, the surplus from banks' foreign exchange settlement and sales on behalf of clients decreased from $55.2 billion the previous month to $35.5 billion. The net settlement position from forwards and options decreased from $19.9 billion the previous month to $5.6 billion. Banks' own foreign exchange settlement and sales position widened from a deficit of $12.4 billion the previous month to a deficit of $19.5 billion (banks' own sales increased to $29.0 billion, the fourth-highest on record). These three components contributed 48%, 35%, and 17%, respectively, to the month-on-month decline in the overall banks' settlement and sales surplus.
The narrowing of the client-based settlement and sales surplus in March was due to an $84.2 billion month-on-month increase in client sales, which was greater than the $64.4 billion increase in client settlements. By item, sales under the goods trade account increased by $50.1 billion month-on-month to $141.9 billion, ranking as the seventh-highest on record. Sales under the securities investment account increased by $19.8 billion to $40.0 billion, a record high. The increased foreign exchange purchase demand in goods trade and securities investment may reflect the impact of faster goods import growth and foreign reduction of RMB assets, respectively.
However, the foreign exchange purchase rate for payments (after deducting forward fulfillment amounts) remained stable around 55.0% for the third consecutive month, while the foreign exchange settlement rate for receipts rebounded by 1.8 percentage points from the previous month to 58.2%.
The cumulative outstanding amount of net forward settlement by banks on behalf of clients decreased by $140 million month-on-month in March, ending an eight-month rising trend. This was mainly because the central bank's reduction of the foreign exchange risk reserve ratio for forward foreign exchange sales业务, effective from early March, led to a significant increase in forward foreign exchange purchase demand. Forward foreign exchange purchase签约 volume increased from $6.7 billion the previous month to $35.2 billion, and the forward purchase hedging ratio rose 7.0 percentage points month-on-month to 9.8%. Both figures were the highest since October 2022. Meanwhile, forward settlement签约 volume increased by $14.7 billion month-on-month, but the forward settlement hedging ratio rose only 1.5 percentage points to 14.3%.
Topic: What Constitutes a Safe-Haven Asset? Following the outbreak of the US-Iran-Israel conflict in late February, global risk aversion intensified significantly, but the performance of traditional safe-haven assets like gold and the US dollar varied. What exactly is a 'safe-haven asset'? How have traditional safe-haven assets historically performed during periods of market turmoil? How should we interpret the divergent performance of safe-haven assets in this recent conflict? This topic aims to analyze these questions.
Discussions about 'safe-haven assets' among market participants often increase during market turbulence, but the concepts of 'safe-haven asset' and 'safe asset' are frequently confused. While they overlap, they are not identical: the former typically refers to assets that can preserve or even increase in value during market turmoil, while the latter refers to assets with stable nominal returns, high liquidity, and extremely low credit risk. Taking gold as an example, the adage 'buy gold in troubled times' signifies that gold is widely regarded by the market as an asset with safe-haven attributes, but its high price volatility means it is not a safe asset. Besides gold, the US dollar, Japanese yen, Swiss franc, and US Treasury bonds are also generally considered to possess safe-haven properties.
Historical experience, however, shows significant differences in the safe-haven effectiveness of different assets during the same period, and of the same asset across different periods. Cheema et al. (2025) identified 13 stock market decline events based on peak-to-trough declines exceeding 10% in the MSCI World Index between 1987 and 2023, also including the stock market decline related to the Asian Financial Crisis. Based on this, they examined the safe-haven characteristics of 11 potential safe-haven assets relative to seven different equity indices. For comparative analysis, the safe-haven effectiveness of major assets relative to the MSCI World Index can be categorized, leading to four main conclusions:
First, the effectiveness of an asset as a safe haven depends on the nature of the shock. During stock market declines caused by macroeconomic or financial market events, government bonds are effective safe-haven assets, with US Treasuries typically showing strong safe-haven characteristics. This is because such events are often accompanied by economic slowdown, disinflation, and rising unemployment, leading to lower US interest rates and thus higher bond prices. However, during stock market declines caused by geopolitical events, the safe-haven属性 of government bonds weakens significantly.
Second, the effectiveness of an asset as a safe haven depends on the country's degree of involvement in the shock. In geopolitical conflicts, assets from countries directly involved in or closely related to the crisis are less likely to act as safe havens.
Third, the safe-haven effectiveness of the Japanese yen has remained relatively stable. It demonstrated safe-haven currency properties in all 13 decline events, generally stronger than the Swiss franc. This is attributed to Japan's near-zero interest rates for much of the sample period and the fact that the events did not originate in Japan.
Fourth, the safe-haven effectiveness of gold and the US dollar has varied considerably. They typically acted as safe havens during macroeconomic/financial market-induced declines. During the three geopolitical conflict-induced declines, their safe-haven attributes showed an inverse relationship.
The US-Iran-Israel conflict that erupted in late February significantly impacted global financial markets. Unlike during the Gulf War, 9/11, and the Russia-Ukraine conflict, the US dollar was the only asset that demonstrated safe-haven attributes in this recent geopolitical conflict, while other traditional safe-havens generally underperformed. In March, the 10-year US Treasury yield rose by 33.0 basis points, continuing its pattern of not acting as a safe haven during previous geopolitical conflicts. The spot price of gold in London fell by 11.8%, continuing its non-safe-haven characteristic observed during the Russia-Ukraine conflict. Even the historically stable yen and Japanese government bonds came under pressure.
This was mainly due to surging energy prices leading to a reversal of monetary easing expectations in major economies and triggering liquidity shocks, prompting a shift of funds into US dollar cash.
From China's perspective, the share of oil and gas in China's energy consumption structure is relatively low, and its dependence on oil and gas imports, particularly from the Middle East, is far lower than in economies like South Korea. Meanwhile, China has recently faced issues like insufficient effective demand and persistently low inflation. Under the combined effect of these factors, the sharp rise in energy prices caused by the Middle East conflict has had a relatively limited direct impact on China's economy. Consequently, RMB-denominated assets demonstrated strong resilience during this conflict.
In March, against the backdrop of significantly rising bond yields in major economies, Chinese bond yields generally maintained low volatility. The 10-year government bond yield traded around 1.82%, only 4.2 basis points higher than at the end of February. Based on the low correlation between RMB bond yields and other major bond yields, RMB bonds have been labeled 'safe-haven assets' by some market participants. However, looking at the custody volume of RMB bonds, overseas institutions' holdings of book-entry government bonds decreased by 52.6 billion yuan from the previous month to 1.95 trillion yuan in March, the lowest level since 2021. This indicates that the stable performance of Chinese government bonds was not driven by foreign safe-haven buying behavior.
Risk提示: Geopolitical risks exceeding expectations, monetary policy adjustments by major central banks exceeding expectations, domestic economic recovery falling short of expectations.
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