The Chinese yuan has weakened against the U.S. dollar this year, especially in recent weeks, falling toward an eight-year low against the greenback, Bloomberg reports.
Now, Beijing is vowing to maintain stability against in its yuan against a basket of foreign currencies by diminishing the weighting of the dollar to 22.4% from 26.4% starting January 1.
“The move is aim to reduce the impact of dollar strength on the overall performance of the basket,” Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd, told Bloomberg. “It will also make it easier for China to manage yuan stability versus the basket, since the yuan will need to appreciate less versus other non-dollar currencies amid dollar strength.”
China is a major exporter and benefits from a weaker currency, but a quick decline in its currency could cause foreign investors to leave the market. The new yuan weight against a basket of foreign currencies better reflects it ties with its other trade partners.
“The new basket is more comprehensive and a better reflection of China’s trade relations,” Sim Moh Siong, a currency strategist at Bank of Singapore Ltd, told Bloomberg. “In the near term, the PBOC’s target would still be to keep the yuan stable versus the basket.”
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