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The modifications of the CFETS basket do not really change its shape

On Dec. 29, the PBoC just announced a change of its currency basket (the so-called CFETS basket). While the basket composition has been changed significantly (details below), the “shape” of the index remains roughly unchanged.

Key points of the composition’s changes

  • The CFETS basket now includes 24 currencies instead of 13 in the previous version. The cumulated weight of these 13 ‘old’ currencies is now 78.9% of the basket.
  • The most significantly inclusion is the KRW (curiously absent from the previous version), with a very big weight : 10.8%, almost as high as the JPY (11.5%).
  • The USD drops by 4% and the HKD (USD pegged) by 2.3%...but SAR and AED (USD pegged) enter the basket with a cumulated weight of 3.9%. So the weight of USD and USD-pegged currencies decreases only by 2.4%.  
  • The weight of EM currencies is significantly higher in the new basket.
  • EUR and European currencies are the currencies for which the weights decline the most.
  • The CHF is the only currency in the previous basket with a rising weight.
  • The new basket is closer to the BIS currency basket and more multipolar. The 24 currencies of the new basket represent 85% of the BIS basket while the 13 currencies of the old basket represented only 68% of the BIS basket. The main differences between the CFETS and the BIS baskets are about the EUR and the JPY, clearly underrepresented in the CFETS basket.
  • Biggest absent currencies: TWD (5.6% of the BIS basket), INR (2.2%), BRL (1.4%), IDR (1.30%)

 

2016.12-Thought-of-the-day-CFETS-Graph1
DRUT Bastien , Fixed Income and FX Strategy
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The modifications of the CFETS basket do not really change its shape
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