China dilutes dollar role in currency basket

BEIJING: China diluted the role of the dollar in a trade-weighted foreign exchange basket and added a further 11 currencies as officials seek to project an image of stability in the yuan. The weighting of the dollar will fall to 22.4% from 26.4% in the basket from January 1, China Foreign Exchange Trade System said in a statement Thursday.

Additions include the South Korean won, the South African rand, the United Arab Emirates' dirham, Saudi Arabia's riyal, Hungary's forint, Poland's zloty and Turkey's lira.

While the yuan has tumbled to an eight-year low against the greenback, it's trading near a four-month high against the CFETS RMB Index. Senior Chinese central bank officials have vowed to maintain stability against the basket as capital outflow pressures mount.

“The move is aim to reduce the impact of dollar strength on the overall performance of the basket,“ said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd.

“It will also make it easier for China to manage yuan stabili ty versus the basket, since the yuan will need to appreciate less versus other non-dollar currencies amid dollar strength.“

The weighting of the basket will be evaluated on an annual basis and updated at the “appropriate time“, according to CFETS. The new composition covers exchange rates of the nation's main trading partners, it said.