China cuts US dollar weighting in key currency basket
The number of currencies in the CFETS basket will also be raised, from 13 to 24
China will reduce the weighting of the US dollar in a basket of currencies it uses to value the yuan.
The CFETS, the country’s foreign exchange trading platform operator, said on Thursday afternoon that from January 1, 2017, the US dollar weighting in the CFETS currency basket will be lowered to 0.2240 from 0.2640. The number of currencies will be increased to 24 from the current 13.
“I do not think the move will influence yuan’s exchange rate against the US dollar,” said Hong Hao, managing director of BOCOM International in Hong Kong. “The adjustment mainly aims to follow trading weights between China and its major trading partners.”
The 11 newly added currencies will account for a 21.09 per cent weighting in the CFETS currency basket. They include the South African rand, the Korean won and the Mexican peso.
The announcement from the CFETS (China Foreign Exchange Trade System) said it was adjusting the composition and weighting to cover the currencies of China’s major trading partners.
“You can notice that Korean won accounts for 0.1077, the fourth biggest one just following US dollar, euro and Japanese yen, as the trading activities between China and Korea are rising,” added Hong.