China's yuan lost 7% value in 2016, worst in 22 years

Beijing: China has reduced the share of US dollars in its foreign exchange basket and added 11 more currencies for measuring the yuan which lost about seven percent value against US dollar last year becoming the worst-performing major Asian currency, a media report said.

China diluted the role of the dollar in its trade-weighted foreign-exchange basket from 26.4 to 22.4 percent for measuring the yuan value, a technical adjustment to redirect market attention from the yuan-dollar parity as Chinese currency steadily weakened against dollar, Hong Kong based South China Morning Post reported.

The China Foreign Exchange Trade System, the onshore foreign exchange market under the central bank, said on December 29 that it would expand the currency basket to 24 foreign currencies from the start of 2017, from the current 13 currencies.

Among the 11 currencies to join the 13 existing ones are the South Korean won, Swedish krona, Saudi riyal, the South African rand, the Hungarian forint, the Turkish lira and the Polish zloty.

As a result, the weighting of the US dollar in the basket will fall to 22.4 percent from the previous 26.4 percent, the daily said.

It is the first time China has adjusted the basket weighting since it published the trade-weighted basket in December 2015 to reduce the excessive focus on the yuan rate against the dollar.

Although other central banks, including the US Federal Reserve and European Central Bank, also release similar nominal effective exchange rate indices for their currencies, calculated against a basket of trade partner currencies, the People's Bank of China has been particularly active in promoting the yuan's rate against a group of currencies, rather than the dollar alone, the report said.

The yuan lost about seven percent against the dollar in 2016, becoming the worst-performing major Asian currency that year, and recording its largest annual loss against the dollar since 1994, it said.

The dilution comes ahead of US President Donal Trump, who has accused China of currency manipulation, assuming the office later this month.

In one his tweets last month, Trump said, "Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into."

He has also nominated Beijing's critic Peter Navarro who wrote a book called "Death by China" to lead the newly-created White House National Trade Council.

The appointment of Navarro as head of the trade council has added more fuel to concerns that China-US bilateral trade will suffer under the Trump administration, with the outside threat of a full-blown trade war, a report in the Global Times said last month.

Chinese officials maintain that yuan value is stable.

Ma Jun, the chief economist at the central bank's research bureau, said at a briefing early in December that the problem is not that the yuan is weak but that the dollar is strong.

While the Chinese government is flagging the importance of looking at the yuan's fair value against a group of currencies, the US dollar remains the dominant foreign currency in real trade.