But what is in the other 50% of China’s basket? Hong Kong dollar?

China's central bank governor Zhou said the dollar accounts for 50% of China's currency basket.  From Market News International:

The weighting of the US dollar in the currency basket which China uses as a reference for the value of the yuan is less than 50 pct, state  media reported. The US dollar accounts for "much less than 50 pct" of  the currency basket, Zhou Xiaochuan, central bank governor, was quoted as saying.

Yeah, right.  So how come market estimates last fall put the dollar's share of the basket far, far higher -- as high as 98%?  See Sun-Bin.

This ranks up their with the assistant Governor's statement that the market sets China's exchange rate (see my previous post)

I haven't seen estimates of basket weights based on what has happened since the dollar started to fall a bit against a range of currencies.  But when the dollar was rising during the fourth quarter, a basket peg -- particularly one with only 50% dollars -- would have implied letting the RMB fall against the dollar to limit its appreciation against the euro and the yen.   That didn't happen.

Last fall, China decided not to irritate Mr. Grassley and others in the US congress by letting the basket's operation undo the the tiny July revaluation.   That means China either changes the basket weights rather frequently to suit its purposes, or it still pegs to the dollar ...  or a mix of US and Hong Kong dollars ...