Group 1: Report Information - Report Title: "Exchange Rate and Liquidity Framework Series 1: What Impact Will Subsequent Foreign Exchange Settlement and Sale Have on Liquidity?" [1] - Report Date: March 4, 2026 [2] - Analysts: Xu Liang (S0590525110037), Research Assistant: Huang Ziyi (S0590125110076) [4] Group 2: Investment Rating - The report does not mention the industry investment rating. Group 3: Core Viewpoints - The impact of foreign exchange settlement and sale on liquidity is mainly reflected in the four - core links of "customs trade surplus → bank's foreign - related payments on behalf of customers → bank's foreign exchange settlement and sale on behalf of customers → central bank's foreign exchange position". The differences between each link determine the intensity and rhythm of liquidity release [6][9]. - Since 2022, China's goods trade has shown the characteristics of "substantial surplus in foreign - related payments and weak willingness of enterprises to settle foreign exchange". As of January 2026, about 1.14 trillion US dollars of un - settled foreign exchange funds have been accumulated. The overall scale of China's foreign exchange funds to be settled is less than 20 billion US dollars, and the difference is mainly due to the continuous cross - border outflow of the securities investment project in the capital and financial account [6][22]. - The "positive return combination of interest rate spread repair + exchange rate appreciation" will drive foreign capital to re - allocate domestic assets and promote the return of carry - trade funds, which will push the full - caliber scale of foreign exchange funds to be settled into an upward channel [29]. - The central bank has a variety of tools in its exchange rate management toolbox. When the RMB appreciation expectation is too strong, it can take corresponding measures to weaken the appreciation; when the RMB depreciation expectation is too strong, it can take measures to weaken the depreciation [6][30][36]. Group 4: Summary by Directory 1 How to Analyze the Impact of Foreign Exchange Settlement and Sale on Liquidity 1.1 The Transmission Chain from Customs Trade Surplus to Foreign Exchange Position - The transmission from cross - border trade surplus to bank system liquidity is mainly reflected in four core links: "customs trade surplus → bank's foreign - related payments on behalf of customers → bank's foreign exchange settlement and sale on behalf of customers → central bank's foreign exchange position". The differences between customs trade surplus and bank's foreign - related payments on behalf of customers are mainly due to cross - border payment time differences and pricing differences. The difference between bank's foreign - related payments on behalf of customers and foreign exchange settlement and sale surplus depends on enterprises' willingness to settle foreign exchange. Whether the bank's foreign exchange settlement and sale surplus on behalf of customers can be converted into the central bank's foreign exchange position depends on the bank's willingness to square positions [6][9][12]. 1.2 Specific Changes in Accounting Subjects - When an enterprise receives 1 million US dollars of foreign exchange and deposits it in Bank A, Bank A's assets and liabilities increase simultaneously. When the enterprise settles foreign exchange with Bank A, Bank A's asset side remains unchanged, and the liability side structure changes. If Bank A squares positions with another commercial bank, the total amount of reserves in the banking system remains unchanged; if it squares positions with the central bank, the central bank's foreign exchange position increases, and the total amount of reserves in the banking system increases [14][15][16]. 2 How to View the Scale of Foreign Exchange Settlement Funds and the Foreign Exchange Positions Not Squared with the Central Bank - The current RMB appreciation is driven by multiple internal and external factors. Since 2022, China's goods trade has had a large surplus in foreign - related payments, but enterprises' willingness to settle foreign exchange is weak. The overall scale of foreign exchange funds to be settled is less than 20 billion US dollars, and the difference from the goods trade scale is due to the continuous cross - border outflow of the securities investment project. In the future, the scale of full - caliber foreign exchange funds to be settled will tend to approach the scale of goods trade foreign exchange funds to be settled [20][22][29]. 3 What Tools Are in the Central Bank's Exchange Rate Management Toolbox - On February 27, 2026, the central bank announced that it would lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0. The central bank's exchange rate management toolbox also includes offshore central bank bills, foreign exchange deposit reserve ratio, cross - border financing macro - prudential adjustment parameters, and counter - cyclical factors. When the RMB appreciation or depreciation expectation is too strong, the central bank can use these tools to adjust [30][36].