China to Adjust Weightings of Key Yuan Index Baskets in 2024
China’s Plan to Adjust Yuan Index Baskets
China will adjust the weightings of two key yuan index baskets in 2024, as announced by the country’s foreign exchange trade platform on Friday. The move aims to better reflect trade patterns and is set to come into effect from Jan. 1.
Changes in Weightings
From the start of 2024, the China Foreign Exchange Trade System (CFETS) will lower the U.S. dollar’s weighting in the CFETS currency basket to 19.46% from 19.83% and reduce the euro’s weighting to 18.08% from 18.21%, according to an online statement released by CFETS. The adjustments are designed to “further enhance the representativeness of the yuan currency basket index,” as stated in the announcement.
Impact on Yuan Trades
While these adjustments are unlikely to create sharp volatility in yuan trades, market watchers suggest they may affect the setting of the yuan’s official daily midpoint fixing, which caps the spot trade in a narrow range of 2% around that level. The CFETS index finished the year at 97.42, down 1.27% this year, according to Reuters calculation based on official data.
Adjustments to CFETS Basket
China has made several adjustments to the CFETS basket since its introduction in December 2015 to better reflect external trade conditions. In addition, the CFETS will also tweak the BIS currency basket RMB index following the Bank for International Settlements’ (BIS) adjustment of currency weightings at the start of this year. This involves the removal of the Croatian kuna and the addition of the Bosnian marka, Moroccan dirham, North Macedonian denar, and Serbian dinar to the basket.
These changes are part of China’s ongoing efforts to adapt its currency index baskets to evolving global trade patterns, with the ultimate goal of better reflecting the country’s external economic relationships.
