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Trade-weighted index to create flexible rate to keep yuan stable
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CHINA aims to maintain a stable yuan by increasingly measuring the currency against a basket of foreign currencies to create a flexible exchange rate system, the central bank said yesterday.
The People’s Bank of China has recently released a trade-weighted index for the yuan that measures the yuan’s valuation against a basket of 13 currencies of China’s major trading partners. The PBOC yesterday said the TWI, which will be released regularly, offers a more thorough view of the yuan’s valuation.
The US dollar, euro and the yen are three largest components in the basket, accounting for 26.4 percent, 21.4 percent and 14.7 percent respectively of the basket.
The TWI, compiled by China Foreign Exchange Trade System, was 101.45 last Friday, indicating that the yuan has appreciated 1.45 percent against the basket of currencies since the end of 2014.
During the same period, the yuan weakened 5 percent against the US dollar under the official reference rate.
There has been some confusion about the yuan’s stability when it “has depreciated against the US dollar steadily in recent sessions,” Netherlands-based Rabobank said in a note yesterday. “What the launch of the TWI should make abundantly clear is that ‘yuan stability’ must now be read as meaning stable in TWI terms.”
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