The CFETS RMB Index (often referred to as the “yuan CFETS Index”) is a trade-weighted currency index published by the China Foreign Exchange Trade System (CFETS). It measures the value of the Chinese yuan (CNY) against a basket of currencies from China’s major trading partners.

While the USD is appreciating globally, weakening the yuan in the USD-CNY pair, other currencies in the basket (like the euro or yen) are depreciating more sharply than the yuan. Thus the yuan will appear stronger relative to the basket as a whole than it is against the USD.

  1. Purpose:

    • The index provides a more comprehensive view of the yuan’s exchange rate performance relative to multiple currencies, rather than focusing solely on the U.S. dollar.
    • It reflects China’s efforts to promote a broader and more balanced understanding of the yuan’s value.

  2. Currency Basket:

    • The index is calculated based on a basket of currencies representing China’s key trading partners.
    • The weights assigned to each currency are determined by their share of China’s trade, ensuring the index reflects the importance of each partner in China’s foreign trade.

  3. Adjustments:

    • CFETS regularly reviews and updates the composition and weights of the currency basket to reflect changes in trade patterns and economic conditions.

  4. Usage:

    • The index is used as a benchmark for the yuan’s relative performance and to guide expectations about China’s currency policy.
    • It aids policymakers, analysts, and traders in assessing the yuan’s stability and competitiveness in global trade.

Distinction from USD-CNY Exchange Rate:

While the USD-CNY exchange rate is a bilateral measure showing the yuan’s value against the U.S. dollar, the CFETS RMB Index offers a multilateral perspective, accounting for the yuan’s movements against a broader set of currencies. This makes it a more holistic measure of the yuan’s overall strength or weakness.

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As a ps. CFETS functions as an operational arm of the PBOC, executing and facilitating the central bank’s foreign exchange policies, while also serving as a hub for yuan trading and market transparency. It plays a key role in supporting China’s exchange rate regime and monetary policy objectives.

This article was written by Eamonn Sheridan at www.forexlive.com.The CFETS RMB Index (often referred to as the “yuan CFETS Index”) is a trade-weighted currency index published by the China Foreign Exchange Trade System (CFETS). It measures the value of the Chinese yuan (CNY) against a basket of currencies from China’s major trading partners.While the USD is appreciating globally, weakening the yuan in the USD-CNY pair, other currencies in the basket (like the euro or yen) are depreciating more sharply than the yuan. Thus the yuan will appear stronger relative to the basket as a whole than it is against the USD. Purpose:The index provides a more comprehensive view of the yuan’s exchange rate performance relative to multiple currencies, rather than focusing solely on the U.S. dollar.It reflects China’s efforts to promote a broader and more balanced understanding of the yuan’s value.Currency Basket:The index is calculated based on a basket of currencies representing China’s key trading partners.The weights assigned to each currency are determined by their share of China’s trade, ensuring the index reflects the importance of each partner in China’s foreign trade.Adjustments:CFETS regularly reviews and updates the composition and weights of the currency basket to reflect changes in trade patterns and economic conditions.Usage:The index is used as a benchmark for the yuan’s relative performance and to guide expectations about China’s currency policy.It aids policymakers, analysts, and traders in assessing the yuan’s stability and competitiveness in global trade.Distinction from USD-CNY Exchange Rate:While the USD-CNY exchange rate is a bilateral measure showing the yuan’s value against the U.S. dollar, the CFETS RMB Index offers a multilateral perspective, accounting for the yuan’s movements against a broader set of currencies. This makes it a more holistic measure of the yuan’s overall strength or weakness.***As a ps. CFETS functions as an operational arm of the PBOC, executing and facilitating the central bank’s foreign exchange policies, while also serving as a hub for yuan trading and market transparency. It plays a key role in supporting China’s exchange rate regime and monetary policy objectives.

This article was written by Eamonn Sheridan at www.forexlive.com.  Read MoreCentral Banks 

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