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August 25th 2005

China reveals composition of currency basket

In a move that was uncharacteristically transparency, China has divulged the composition of the currency basket that is tied to the Yuan. According to senior Chinese officials, the basket is composed of USD, Euros, Japanese Yen, and Korean Won, as well as the currencies of Singapore, Britain, Malaysia, Russia, Australia, Thailand and Canada. While China failed to disclose the exact proportions, it hinted the composition would be trade-weighted, leading economists to speculate the USD would be most important, followed by the Euro and Japanese Yen. The basket’s broad make-up will succeed in minimizing the Yuan’s volatility, for large fluctuations in component currencies will be spread across the entire basket. The Economist reports:

Using a weighted average of China’s trade and FDI, [one economist] guesses that the dollar has a weight of 43%, the yen 18% and the euro 14%. This incorporates a higher dollar weight to reflect the importance of Hong Kong and Taiwan.

Read More: Chinese puzzles

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Posted by Adam Kritzer | in Chinese Yuan (RMB), Investing & Trading | No Comments »

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