Caixin
Jan 01, 2020 03:01 AM
FINANCE

China Trims Dollar Weighting in Key Yuan Forex Index

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China will trim the weighting of the U.S. dollar and expand that of the euro in a basket of foreign currencies that are used to measure the yuan’s strength in only the second adjustment in the four-year-old index’s history.

Starting Jan. 1, the China Foreign Exchange Trade System (CFETS) will reduce the U.S. dollar’s weighting in the CFETS currency basket to 21.59% from 22.40% and will increase the euro’s weighting to 17.40% from 16.34%, the country’s foreign exchange trading platform said (link in Chinese) Tuesday.

The adjustment also affects several other major currencies. The weighting of the Japanese yen will be reduced from 11.53% to 11.16%, and that of the Hong Kong dollar, from 4.28% to 3.57%. The British pound’s weighting will be cut from 3.16% to 2.75%, and the Australian dollar’s will be increased from 4.4% to 5.2%

The basket consists of 24 foreign currencies reflecting China’s external trading. The CFETS said the weighting of the yuan index was calculated using trade-weighted methods.

China introduced the trade-weighted yuan exchange-rate index in December 2015 as part of a restructuring to build a more market-based and transparent foreign exchange regime. The basket has been adjusted only once, in 2017, when the number of currencies was expanded from 13 to 24 and the weighting of the U.S. dollar was cut from 26.4% to 22.4%.

The onshore yuan closed domestic trading at 6.9662 to the dollar Tuesday, down 1.3% for the year in a second year of decline. The CFETS index fell more than 2% in 2019.

The trading platform also said it would adjust the weighting of a yuan index based on the BIS currency basket by removing Venezuela’s bolivar and adding the Icelandic crown.

Contact reporter Han Wei (weihan@caixin.com)

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