US dollar losing weight in China's trade-weighted yuan index amid trade war

Source:Global Times Published: 2019/12/31 20:01:30


The US dollar is set to lose weight in China's trade-weighed currency index on New Year's Day falling on Wednesday, per a new version of the CFETS yuan index unveiled Tuesday by the China Foreign Exchange Trade System, a subsidiary of China's central bank, as the US-initiated trade war has intensely bruised its trade with China.

The weighting of the dollar in the CFETS index that gauges the yuan's performance against a basket of currencies will shrink to 21.59 percent, per a new version of the index recalculated based on the annual trade data for 2018, the central bank sub-institution said in a statement posted on its website.

The current version based on the 2015 trade data was published in 2017, which puts the dollar's weighting at 22.4 percent.

The CFETS index, quoted every week, stood at 91.65, per the latest data on Friday, up 0.15 from the previous week.

The yuan's daily fixing rate was set at 6.9762 against the US dollar on Tuesday, strengthening 43 basis points from the prior day.

The trade-weighted currency index was unveiled in late 2015 to measure the performance of the Chinese currency against a basket of 13 currencies. The currency basket was expanded to 24 when the existing version of the index was published. 

The number of currencies in the basket is unchanged at 24 in the latest version to be effective on Wednesday.

The weighting of the Hong Kong dollar pegged to the US dollar will edge down to 3.57 percent from 4.28 percent, although it remains the fourth-biggest currency in the basket. 

By comparison, the euro, the second-largest in the currency basket, sees its share rise to 17.4 percent from 16.34 percent, while the weight of the Japanese yen, the third-largest, will edge down to 11.16 percent from 11.53 percent. 

The readjusted index shows the fading role of the dollar in the currency basket as the trade war between the world's top two economies has weighed on bilateral trade.

China's trade with the US fell 11.1 percent year-on-year to 3.4 trillion yuan ($488.57 billion) in the first 11 months of the year, according to Chinese customs data, worsening from a 10.6 percent contraction in the first 10 months

The nation's yuan-denominated trade with the EU, China's top trading partner, posted a rise of 7.7 percent in the first 11 months, per Chinese customs statistics.

Also on Tuesday, the Central Bank subsidiary unveiled a readjusted version of a yuan index based on the Bank for International Settlements (BIS) currency basket. The new version trades the Venezuelan bolivar for the Icelandic krona.

The index gauging the Chinese yuan against the IMF's Special Drawing Rights basket remains unchanged.

Global Times


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