China reveals basket of currencies

China has revealed for the first time which international currencies comprise the basket of currencies against which it measures its own currency, the yuan.

The US dollar, the euro, the Japanese yen and the South Korean won dominate the basket of currencies, which was introduced on 21 July after China revalued the yuan. The basket also contains the UK pound, the Thai bath and the Russian rouble.

China’s currency had been pegged at 8.28 against the dollar for a decade, but the revaluation allowed the yuan to float against a number of currencies and effectively strengthened it by 2.1% to 8.11 to the dollar.

The yuan has since appreciated slightly on China’s restricted foreign exchange market, closing at 8.1062 to the dollar Wednesday.

People’s Bank of China governor Zhou Xiaochuan said: “The currencies in the basket depend on the amount of foreign trade we conduct. The US, eurozone, Japan and South Korea are our biggest trading partners now”.

Some analysts were surprised that the Taiwan dollar wasn’t included in the basket.

China is also planning further currency market reforms, including allowing non-banking firms to trade in its onshore foreign exchange market. It is also launching forex (foreign exchange) forwards on the domestic interbank market.