The State Administration of Foreign Exchange released the latest data on foreign exchange settlement and sales for December on Thursday, and the figures were staggering. The surplus in bank foreign exchange settlement and sales on behalf of clients reached $99.9 billion in December, marking the highest level in history since records began.
Breaking down the components reveals a detailed picture.
The net foreign exchange settlement for goods trade was $111.3 billion, surpassing the previous record of $81.8 billion set in January 2013 and reaching an all-time high. This figure closely aligns with the $114.1 billion trade surplus data released just on Tuesday based on customs statistics.
The services trade maintained its consistent pattern of net foreign exchange purchases, with the deficit widening slightly to $19 billion.
The capital account showed a net foreign exchange settlement of $8.3 billion, reversing the deficit trend observed since July. Within this, the direct investment deficit was $1.8 billion, while the securities investment surplus surged to a record $11.4 billion, also setting a new monthly historical high. The cumulative net foreign exchange settlement under the securities investment category for 2025 totaled $27.2 billion.
The foreign exchange settlement ratio climbed by 7 percentage points to 69% in December, while the foreign exchange purchase ratio dropped by 4 percentage points to 61%. The divergence between these two ratios clearly indicates a market sentiment shift towards expecting Renminbi appreciation.
Given such impressive settlement data, it is understandable why the Renminbi has strengthened against the trend even as the US dollar index has risen. The CFETS RMB Index has now broken through the 99 level. The three largest non-US dollar currencies by weight in the index – the Euro (EUR), the Korean Won (KRW), and the Japanese Yen (JPY) – have all performed poorly since the start of the year. The Euro is weighed down by geopolitical concerns, while the Won and Yen, two struggling Asian currencies, have been exceptionally weak.
(Note: In the latest CFETS basket adjustment for 2026, announced by the China Foreign Exchange Trade System using 2024 trade data for weightings, the proportion of the Korean Won was increased while that of the Japanese Yen was decreased. Consequently, the Won has surpassed the Yen to become the third-largest currency in the CFETS RMB basket.) The depreciation of the Korean Won is particularly puzzling. Despite strong performance in the Korean stock market this year, the Won has weakened consistently, with the USD/KRW rate breaking through the 1480 level on Wednesday, reaching its weakest point since 2009.
Similar to the Yen, the primary reason for the Won's depreciation is capital outflows. The Korean stock market is primarily being bought by local institutional investors, while foreign buyers have been net sellers. On one hand, Korean retail investors are heavily purchasing US AI stocks. On the other hand, the National Pension Service (NPS) typically increases its overseas investments in the first quarter, applying seasonal depreciation pressure on the Won. It is no wonder that even US Treasury Secretary Bessent felt compelled to issue a "verbal intervention" on Wednesday evening, stating that the Won's depreciation has deviated from its fundamentals. Chart: Divergence between the Korea Composite Stock Price Index (KOSPI) and the Korean Won exchange rate (left axis, inverted)
In summary, the record-high foreign exchange settlement in December can be attributed to three main factors. First, robust exports; second, overseas capital inflows driven by bullish sentiment towards A-shares; and third, after the USD/CNY broke through 7, strong market expectations for Renminbi appreciation amplified the typical year-end seasonal settlement forces.
Looking ahead, given the strength of exports and capital inflows, the Renminbi's appreciation trend is expected to continue. However, with the RMB index already at a high level, the pace of appreciation is likely to remain relatively controlled.
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