What's currently in your basket?

Since the renminbi was un-pegged from the U.S. dollar on July 21st of last year, very little has been seen or heard of the yuan and the mysterious "basket of currencies" from which the bank now determines its trading value. The renminbi, allowed to trade only within 0.3 percent of a mid-point fixed daily by the central bank, has been gaining ground on the sawbuck since that time. As of today, Reuters reports that the yuan is trading at 8.0560 to the dollar, a gain of nearly 0.7 percent since its revaluation last year.

When China initiated its system of currency valuation last year and government officials decreed that the yuan would value itself against a "basket of currencies" consisting mainly of the U.S. dollar, the Euro, the Japanese yen and the South Korean won, experts speculated that U.S. dollars would outweigh other currencies, as Sino-U.S. trade is the backbone of the Chinese exporting juggernaut.

On January 21st, Chinese central bank Governor Zhou Xiaochuan announced that U.S. dollars made up less than half the weight in its basket of currencies, which has speculators changing their tune. China's economy overtook France and the U.K. last year to claim the title of fourth-largest in the world, so pressure may increase on the Chinese central authority to move to a more flexible currency regime.

As Bloomberg reports, steps are already being taken in that direction:

The yuan's trading system started posting real-time quotes between banks on Jan. 25. Exchange-based trading in the yuan ends at 3:30 p.m., while dealing directly between banks continues for two more hours.

China's central bank on Jan. 4 allowed 13 commercial banks to start acting as market makers in the currency, ending its role as the sole counterparty in all yuan trades and giving the market a bigger role in setting the exchange rate.

What does this mean to those holding tight to greenbacks? Well, let's just say the news isn't good. If freely traded, Bloomberg reports that the yuan's value would rise to 7.7125 by the end of the year (based on forward contracts in Hong Kong), and while the current currency regime is quiet on the actual weights of currencies in its basket, the fewer U.S. dollars present, the more the renminbi will move.

In Shanghai, don't expect radical change: property values will remain ridiculously inflated and bars will still charge you an arm and a leg for a pint of swill. Nevertheless, Shanghaiist promises to keep you abreast of any further changes to the current currency situation -- after all, it is still all about the Maojamins.