China to cut weighting of dollar, euro in CFETS yuan basket index in 2023

China to cut weighting of dollar, euro in CFETS yuan basket index in 2023
FILE PHOTO: U.S. Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration

SHANGHAI : China will adjust the weightings of a key yuan index basket in 2023, the country’s foreign exchange trading platform said on Friday, in a move to ensure the currency’s value is in line with trade situations.

Starting on Jan. 1, the China Foreign Exchange Trade System (CFETS), which is overseen by the central bank, will lower the dollar’s weighting in the CFETS currency basket to 19.83 per cent from 19.88 per cent and cut the euro’s weighting to 18.21 per cent from 18.45 per cent, according to an online statement.

Such adjustments are unlikely to create volatility in yuan trades, but it may affect the setting of the yuan’s official daily midpoint fixing, which caps the spot trade in a narrow range of 2 per cent around that level.

The CFETS index finished the year at 98.67, down 3.71 per cent from a year earlier, according to Reuters calculation based on official data. During the same period, the onshore yuan lost about 8.6 per cent to the dollar and looked set for the biggest annual drop since 1994.

China has adjusted the CFETS basket multiple times since it introduced the trade-weighted yuan index in December 2015 to better reflect external trade conditions.

The trading platform also said it would keep the weighting of a yuan index based on the BIS currency basket unchanged, while lifted dollar’s weighting in another index based on the SDR basket.


Source: Reuters