China Is Set to Reduce Dollar’s Influence on Yuan Trading Basket
(Bloomberg) - The dollar's influence on setting the yuan exchange rate in China is expected to decrease again this year.
A branch of the Chinese central bank takes into account the movements of a basket of currencies from trading partners when setting the daily reference interest rate for the yuan. The weighting of each of the 24 components in the CFETS RMB index is adjusted based on the share each nation had in total trade with China in the previous year.
At just over a fifth, the share of the greenback is currently the highest in the shopping cart. However, it has been falling since 2015. Last year, the U.S. accounted for 17.8% of China's two-way shipments with the 24 peers last year, up from 20.5% in 2018, according to Bloomberg data. China is expected to adjust the basket by the end of the year.
READ: Rapid China Inflows Spur Call for Strongest Yuan since 1993
China started pegging the yuan against its trading partners' basket of currencies in 2015. The weighting of the dollar was reduced to 21.59% compared to 22.4% in last year's adjustment. With the decline in the greenback, the euro has risen: it accounts for 17.4% of the currency basket, up from 16.34% four years ago.
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