China's cut of dollar weighting in key index will boost global fortunes of yuan, economists say

Section:

By Orange Wang
South China Morning Post
Thursday, January 2, 2020

China's decision to cut the weighting of the US dollar in a basket of foreign currencies used to determine the strength of the yuan will help Beijing's long-term efforts to weaken the international dominance of the American currency, economists said.

The China Foreign Exchange Trade System (CFETS), a unit of the Chinese central bank, on Wednesday trimmed the weighting of the U.S. dollar to 21.59 percent from 22.40 percent in a key yuan exchange index to make it "more representative" of current trade conditions.

... Dispatch continues below ...



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The new version of the index will be based on 2018 trade data, rather than data from 2015, when the CFETS was established.

The move, which comes amid heightened trade tensions between China and the United States, will help Beijing's long-term efforts to create an alternative international payments system, economists said.

"The yuan hopes to become a reserve currency, to prevent the situation where the U.S. dollar dominates the global financial system -- or the so-called hegemony of the dollar. This is a longer-term goal ... and an inevitable trend," said Shen Jianguan, vice-president and chief economist at JD Digits, although he added the adjustment also reflected changes to China's trading environment. ...

... For the remainder of the report:

https://www.scmp.com/economy/china-economy/article/3044353/chinas-cut-us...

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