Currency basket
A currency basket is a weighted combination of different currencies into one unit. The participating countries determine the currency components (W i ), the quantities of the individual currencies, for the basket currency (i) , which together should result in a unit of the basket currency. The weights (G i ) of the individual currencies in the basket are calculated using the exchange rates of the individual currencies (K i ) against a common currency (G i = W i / K i ).
The currency components are generally chosen in such a way that the weights roughly reflect the economic importance of the countries involved.
Meaning and application examples
meaning
The currency basket thus represents an artificially created currency that is used both in the context of currency policy and to protect companies against exchange rate fluctuations. Such a currency basket can also be used to measure the price competitiveness of a country's exports. An example of such an artificial currency is the European currency unit. We adopt a new local currency, CB. The US dollar, German mark and Japanese yen are involved as the currency components in the currency basket of country C. The three currencies have the same weight. It follows that the actual exchange rate of country C results from the exchange rates of the foreign currencies involved.
- RE i, CB = (RE i, US ) (1/3) (RE i, JP ) (1/3) (RE i, DM ) (1/3)
Examples of Europe
Components
European Currency Unit (ECU)
Before the introduction of the euro, there was already a European currency unit, the European Currency Unit (ECU). The ECU was defined as an (artificial) currency basket made up of fixed proportions of twelve of the fifteen EU currencies. The official ECU acted u. a. as a unit of account in the European Monetary System (EMS), as a means of payment between the national central banks and as an official reserve currency. On January 1, 1999, the ECU was replaced by the euro at a 1: 1 ratio.
European Monetary System (EMS)
The monetary system of the European Community sets fixed exchange rates between the currencies of all member states (exceptions: Greece and Great Britain). The system is based on an exchange rate mechanism that allows the exchange rates to deviate from the bilateral central rates by ± 2.5% (Lira: ± 6%) and obliges the central banks to intervene if the rate is exceeded or not reached. The interventions are carried out with the help of a credit system based on the ECU according to a system specifically defined for this purpose. There is also a set of rules for a comprehensive financial assistance system.
The European currency unit
The European currency unit as the European unit of account and currency is an artificial basket currency that is calculated from the unanimously determined proportions of the currencies of the members of the European Monetary System (EMS) in the currency basket. The ECU was a central part of the EMS. An exchange ratio to the ECU was set for each currency. From this, the central rates of the EMS currencies can be determined. The exchange rates of the individual currencies were only allowed to fluctuate around these central rates within certain ranges. Otherwise, the national central banks had to intervene to stabilize these fixed exchange rates. The ECU was abolished with the introduction of the euro.
A currency basket is created by the International Monetary Fund (IMF) to determine the value of a unit of special drawing rights and by the EMS to calculate the ECU. On the one hand, it determines what percentage a national currency has in a unit of the new "artificial currency '' (e.g. 33% of an ECU consists of DM, 13% of pounds, etc.) and, on the other hand, it determines what absolute amount in of the respective national currency makes up this percentage (e.g. 33% DM share of the ECU = 0.80 DM, 13% pound share of the ECU = 0.08 pounds, etc.). The new, artificial currency is used to determine the parity between the currencies of the member countries of the fund in order to maintain a central parity and to stabilize the exchange rates. It applies z. B. 2.40 DM - 1 ECU = 0.61 Ł. The same principle is used in the creation of Special Drawing Rights in the IMF.
The special example of China
Yuan or Renminbi (RMB) is the Chinese national currency. It is pegged to the US dollar. The yuan refers to the US dollar in the nominal exchange rate , which has not changed for many years since 1994. The yuan tracks exchange rate fluctuations between the dollar and other currencies, while maintaining a very close relationship to the US dollar. The anchoring of the yuan to the dollar is understandable, even if China never officially confirmed this.
On July 21, 2005, the Chinese government surprisingly announced that this currency relationship would be replaced by a link to a currency basket. The yuan also appreciated 2.1 percent against the dollar (1 dollar = 8.11 RMB). Less than three weeks after the pegged dollar ended, the Chinese government disclosed details of the composition of the new currency basket for the first time. According to this, the national currency, the yuan, is mainly linked to the dollar, the euro, the Japanese yen and the South Korean won. "The currencies in the basket depend on the volume of our foreign trade," said the Chinese central bank governor Zhou Xiaochuan. "The USA, the euro zone, Japan and South Korea are now our biggest trading partners, so their currencies are of course the most important ones in the basket." According to the information, the Singapore dollar, the British pound, the Malaysian ringgit, the Russian ruble, Australian dollar, Thai baht and Canadian dollar included. The weighting within the currency basket is based on data on foreign trade, foreign debt and direct foreign investment by China and foreign investment in the People's Republic. Furthermore, he is primarily oriented towards raw materials and services. According to estimates, the dollar is likely to have the greatest weight in the Chinese currency basket with 30 percent, followed by the euro and the yen with 20 percent each and the South Korean won with 10 percent.
The composition of the currency basket is decisive for the country's currency reserves . The Chinese would set them up in such a way that the currency risk is kept as low as possible.
Currency baskets as an instrument of monetary policy
Within the framework of a fixed exchange rate peg , currency baskets represent an alternative to pegging the exchange rate to a single currency, especially for internationally interlinked economies . The proportion of currencies in the basket depends on their importance for the binding country. The exchange rates of the domestic currency against the currencies contained in the basket flow proportionately into the exchange rate of the domestic currency against the currency basket. The aim of monetary policy is to keep the rate between the domestic currency and the currency basket constant. In practice, this is achieved, for example, through interventions in the foreign exchange market .
The most famous currency basket was until the introduction of the euro used ECU . The member countries of the European Monetary System ( EMS) bound themselves to it . Another, introduced a currency basket artificial currency, the Special Drawing Rights of the IMF .
Currency baskets as a business tool
Billing in existing or fictitious currency baskets can also be useful for companies, as this means that there are fewer exchange rate fluctuations. In some branches of industry (e.g. telecommunications and postal services ), offsetting in IMF special drawing rights is customary internationally. As a result, for example, an exchange rate fluctuation between the euro and the US dollar has less of an impact, since both currencies are included in the calculation of the SDR.
Individual evidence
- ↑ Comparison AD HOC NEWS: Currency basket , URL: http://www.ad-hoc-news.de/waehrungskorb--/de/Boersenlexikon/16333353 , University Professor Dr. Gerhard Merk, University of Siegen
- ↑ Comparison Welt Online: China reveals details about the new currency basket , URL: https://www.welt.de/print-welt/article688110/China-gibt-Details-zum-neuen-Waehrungskorb-preis.html , August 11th 2005