Data from the State Administration of Foreign Exchange on April 7th showed that as of the end of March 2026, China's foreign exchange reserves stood at $3.3421 trillion, a decrease of $85.7 billion compared to the end of February, representing a decline of 2.5%. Despite the month-on-month drop, the reserves have remained above the $3.3 trillion mark for eight consecutive months.
The State Administration of Foreign Exchange stated that in March 2026, influenced by the global macroeconomic environment, monetary policies of major economies, and related expectations, the US dollar index rose, while prices of major global financial assets fell. The combined effect of currency translation and changes in asset prices led to the decrease in the scale of foreign exchange reserves for the month. China's economy continues to operate steadily with progress, achieving new results in high-quality development, which supports the fundamental stability of the foreign exchange reserve scale.
Wang Qing, Chief Macro Analyst at Dongfang Jincheng, indicated that the month-on-month decline in reserves at the end of March was the largest since February 2016, primarily due to the dual drag from a rapid rise in the US dollar index and a significant drop in global financial asset prices during the month. The outbreak of geopolitical risks in the Middle East in March drove safe-haven demand, accelerating the rise of the US dollar index, which increased by 2.29% for the month, marking the largest gain in nearly eight months. This led to the depreciation of non-US dollar assets within China's reserves, reducing the dollar-denominated reserve scale.
Regarding gold reserves, the central bank increased its holdings for the 17th consecutive month. Data released on the same day showed that gold reserves stood at 74.38 million ounces at the end of March 2026, compared to 74.22 million ounces at the end of February, representing a monthly increase of 160,000 ounces. This rate of accumulation surged significantly from the previous month's 30,000 ounces, reaching the highest level in thirteen months.
Market voices suggested the central bank's substantial gold purchase might be a "bottom-fishing" move. However, Wang Lixin, CEO of the World Gold Council in China, previously stated that global central banks' increased gold purchases are not based on short-term price gains but are instead part of a longer-term perspective on gold allocation.
Wang Lixin emphasized that the primary requirement for central bank reserve assets is safety, followed by good liquidity, with returns being a secondary consideration. A major goal of continuous gold accumulation by central banks is to diversify the composition of their reserve assets and reduce over-reliance on any single sovereign currency. Additionally, they value gold's safe-haven function amid increasing volatility in global financial asset prices, which helps reduce fluctuations in reserve asset values.
Negative valuation effects contributed to the month-on-month decline in reserves. Financial markets have long observed that whenever the US dollar index rises significantly in a given month, the foreign exchange reserves of many countries often decline month-on-month due to the reduced dollar value of non-US assets when converted.
Guan Tao, Global Chief Economist at BOC International Securities, noted that the $85.7 billion decrease in foreign exchange reserves to $3.3421 trillion in March ended a previous seven-month streak of increases. This mainly reflected negative valuation effects from currency translation and asset price changes, influenced by monetary policies, expectations, and macroeconomic data from major economies.
Driven by the global macroeconomic environment and monetary policy expectations, the US dollar index continued to strengthen in March, revisiting the 100 level after three months and rising 2.4% for the month to 99.96. Non-US dollar currencies and global financial asset prices generally fell, with the US dollar-hedged global bond index dropping 1.8% and the S&P 500 stock index falling 5.1%.
Wen Bin, Chief Economist at China Minsheng Bank, interpreted that escalating conflicts involving the US, Israel, and Iran in March, particularly Iran's blockade of the strategic Strait of Hormuz, disrupted Middle Eastern crude oil exports, leading to a surge in oil prices and a broad decline in global asset prices. Rising oil prices fueled inflation expectations, with markets even beginning to bet on Federal Reserve rate hikes. Supported by expectations of prolonged high interest rates and the回流 of safe-haven funds, the US dollar index continued its strengthening trend. The combined impact of asset price changes and exchange rate fluctuations led to the $85.7 billion month-on-month drop in reserves at the end of March.
Looking ahead, Wen Bin believes exports will continue to serve as the foundation for the balance of payments. Since the beginning of the year, China's export performance has far exceeded expectations, with a year-on-year growth rate of 21.8% for January-February. This reflects not only resilient external demand but also the results of diversified export markets and upgraded export product structures. Against the backdrop of oil price shocks impacting global supply chains, China's advantages in new energy manufacturing and comprehensive industrial chains will become more prominent.
Regarding cross-border capital flows, Wen Bin expects that with the continuous expansion of market access in China's service sector and the steady deepening of institutional opening-up, the level of facilitation for cross-border investment and financing will keep improving, supporting stable foreign direct investment. Simultaneously, the valuation advantages and allocation value of RMB assets are prominent, suggesting portfolio investment is likely to continue flowing in at a reasonable scale. China's stable economic operation with progress and achievements in high-quality development provides solid support for maintaining the fundamental stability of the foreign exchange reserve scale.
Wang Qing emphasized that despite the month-on-month decline, the reserve scale in March remained near the highs of the past decade. Measured by various standards, the current reserve level above $3.3 trillion is considered ample. Against a backdrop of increasing volatility in the external political and economic environment, moderately ample reserves provide crucial support for keeping the RMB exchange rate at a reasonable and balanced level and act as a stabilizer against potential external shocks.
The central bank increased its gold reserves for the 17th consecutive month, with the March addition of 160,000 ounces being the highest since December 2024. In March 2026, international gold prices experienced their sharpest monthly plunge since the 2008 financial crisis, falling by 11.54%, the largest monthly drop in nearly 17 years.
Since the start of a new accumulation cycle in November 2024, the central bank's gold purchases had generally shown a slowing trend, but the pace accelerated significantly in March 2026.
Wang Qing noted that the escalation of the Middle East situation, which significantly pushed up international oil prices, coupled with cooled expectations for global monetary easing including Fed rate cuts, led to a double-digit percentage decline in international gold prices in March. This likely served as a direct reason for the central bank's accelerated gold purchases that month. Furthermore, the outbreak of geopolitical risks in the Middle East itself was a factor prompting increased gold holdings.
In the view of Ankai, Americas CEO and Global Head of Research at the World Gold Council, central bank gold buying will remain a key variable in the gold market in 2026. In recent years, emerging market central banks have continuously increased their gold reserves, becoming a major pillar of gold demand. Gold accounts for approximately 25% of global central bank foreign exchange reserves, with developed economies around 30% and emerging markets around 15%. As global reserve structures increasingly diversify, the proportion of gold allocation by emerging market central banks is expected to rise further.
Ankai stated that central banks' gold purchasing behavior reflects the global monetary system's trust and reliance on gold, further consolidating gold's strategic position on central bank balance sheets. In an uncertain global environment, the strategic allocation value of gold is becoming more prominent. Whether as a risk hedging tool or for portfolio diversification, gold will continue to play an irreplaceable role in the global financial system.
Industry insiders believe the People's Bank of China's gold accumulation is influenced by several major factors: firstly, increased volatility in global financial markets prompts relevant Chinese authorities to hold more gold to reduce fluctuations in reserve assets; secondly, changes in the international landscape are accelerating the diversification of reserve assets by various countries, with gold, as a traditional safe-haven and supra-sovereign asset, offering better asset protection; thirdly, gold is a widely accepted ultimate means of payment, and increasing gold holdings can enhance the credibility of the sovereign currency.
Data shows that after 17 consecutive months of accumulation, the PBOC's total gold reserves have reached 74.38 million ounces, raising the proportion of gold in China's reserve assets to above 9.13%. However, this remains significantly below the global average of approximately 15%. Historically, gold's share in reserve assets of developed countries like France and Germany has consistently exceeded 50%, while in emerging markets like South Africa and Argentina, it also reaches over 10%.
Pang Hun, a Special Senior Researcher at the National Institution for Finance & Development, believes that gold possesses irreplaceable advantages in hedging, inflation resistance, and long-term value preservation. With its multiple attributes encompassing both financial and commodity characteristics, the tactical operations of the PBOC in promoting international reserve diversification, including adding and dynamically adjusting gold holdings within the portfolio, will not change, nor will the strategic direction of continuously accumulating gold.
Comments