Introduction
The Chinese currency has become a significant topic of discussion in recent times, given its association with one of the world’s largest economies. The issue at the forefront is China’s alleged policy of artificially undervaluing its currency, known as the renminbi (RMB), against the U.S. dollar to gain an unfair advantage in international trade. However, it is essential to understand the difference between the terms “yuan” and “renminbi” to grasp the intricacies of the Chinese currency system.
Yuan (CNY) and Renminbi (RMB): Interchangeable Terms
The terms “yuan” and “renminbi” are often used interchangeably when referring to China’s currency. The renminbi is the official name of the currency, while the yuan serves as the principal unit of account for that currency.
Key Points:
- The Chinese Yuan (CNY) and Renminbi (RMB) are interchangeable terms for China’s currency.
- The Renminbi (RMB) is the official name, and the principal unit of RMB is called the Chinese Yuan (CNY).
- CNY is the official ISO 4217 abbreviation for China’s currency. CNH is sometimes used unofficially for the offshore price of the yuan.
- The yuan character is also used in the names of other currencies, such as the New Taiwan Dollar, Hong Kong Dollar, Singapore Dollar, or the Macanese Pacata.
- The renminbi was added to the list of the top-five most-used currencies, making it part of the IMF’s Special Drawing Rights basket.
Understanding Yuan (CNY)
The term “yuan” has historical roots and was traditionally used to describe round or circular objects. In the seventeenth and eighteenth centuries, European merchants introduced silver Spanish dollars to China, which were referred to as “yuan” due to their round shape.
In 1889, China began minting its own silver yuan coins. Both the Qing Dynasty and the early Republican government circulated silver yuan coins and banknotes. Today, the character for yuan is also used in other Chinese-speaking regions for their currencies, such as the New Taiwan Dollar, Hong Kong Dollar, Singapore Dollar, and the Macanese Pacata.
To differentiate the mainland Chinese currency from other uses of the term, the modern-day Chinese Yuan is abbreviated as CNY. This abbreviation is commonly used in the financial industry, including forex trading, where prices are quoted with the ticker symbol CNY.
Key Facts:
- The largest banknote denomination is 100 yuan, followed by 50 yuan, 20 yuan, 10 yuan, 5 yuan, and 1 yuan.
- One yuan can be further divided into jiao and fen. There are 10 jiao in a yuan and 10 fen in a jiao.
- The word “yuan” is often used in Mandarin translations of foreign currencies. For example, the U.S. dollar is translated as “mei yuan.”
Exploring Renminbi (RMB)
The term “renminbi” gained prominence during the Chinese Civil War when the communist party established the People’s Bank of China and issued the first renminbi notes in December 1948, a year before defeating the Kuomintang government.
The introduction of the renminbi aimed to unify the Chinese economy, which was previously divided among several regional currencies. It also represented a departure from the previous government’s policies, which had resulted in high levels of hyperinflation. In 1955, the RMB was revalued at a rate of 10,000 to one, effectively replacing the old yuan.
During the period of the command economy, the value of the RMB was tightly controlled, with one yuan pegged at 2.46 yuan to the U.S. dollar until 1971. As China’s economy opened up to international markets, the People’s Bank of China allowed the yuan to trade on the global stage, although the exchange rate was still heavily managed.
Key Differences:
- Renminbi is the official currency of the People’s Republic of China, with the meaning “people’s currency” in Mandarin.
- A yuan is a unit of the renminbi. Renminbi is equivalent to sterling for the British pound.
- Renminbi and yuan are used interchangeably, and in China, prices may also be expressed in terms of kuai, similar to how “bucks” is used for dollars in the U.S.
- CNY is the official currency abbreviation, but RMB is often used unofficially. The offshore price of the yuan is sometimes referred to as CNH.
Special Considerations
Over the years, China has sought to increase the international usage of its currency, promoting the renminbi as a global medium of exchange. However, China maintains strict currency controls to manage the value of the Chinese Yuan, setting a daily midpoint value against the U.S. dollar. The yuan is allowed to trade within a 2% band around this midpoint, with occasional adjustments based on unspecified “counter-cyclical” factors.
Some economists argue that these controls keep the yuan undervalued, enhancing the competitiveness of Chinese exports. In response to an escalating tariff war with the United States, the value of the yuan reached a 13-month low in the summer of 2018, leading to accusations of currency manipulation.
In recent years, the renminbi has gained recognition as one of the top-five most-used currencies alongside the U.S. dollar, euro, yen, and British pound. Its inclusion in the IMF’s Special Drawing Rights basket further solidifies its importance as an international reserve asset.
Exchange Rates: 3,000 Yuan to USD
As of July 5, 2022, one dollar is worth 6.719 yuan renminbi, while one Chinese yuan is equivalent to 14.9 U.S. cents. Exchange rates fluctuate and are subject to market conditions.
Conclusion
Whether referred to as yuan or renminbi, the Chinese currency plays a central role in the global economy. China’s efforts to promote the renminbi’s internationalization highlight its growing significance. As the currency continues to evolve, it remains an influential force in the world of finance.
