The Renminbi (RMB, sign: ; code: CNY; also CN , and CN ) is the official currency of the People's Republic of China (PRC). Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC. Its name () means "people's currency".
The primary unit of renminbi is the yu n ( ). One yuan is subdivided into 10 ji o ( ), which in turn is subdivided into 10 f n ( ). Renminbi banknotes are available in denominations from 1 jiao to 100 yuan ( 0.1 100) and coins have denominations from 1 fen to 1 yuan ( 0.01 1). Thus, some denominations exist in coins and banknotes, but they are usually used in coins if under 1. Coins under 0.1 are used infrequently.
Through most of its history, the value of the renminbi was pegged to the U.S. dollar. As China pursued its gradual transition from central planning to a market economy, and increased its participation in foreign trade, the renminbi was devalued to increase the competitiveness of Chinese industry. It has been claimed that the current official exchange rate is lower than the value of the renminbi by purchasing power parity, undervalued by as much as 37.5% (see below).
Since 2005, the renminbi exchange rate has been allowed to float in a narrow margin around a fixed base rate determined with reference to a basket of world currencies. The Chinese government has announced that it will gradually increase the flexibility of the exchange rate. China has initiated various pilot projects to "internationalize" the RMB in the hope that it will become a reserve currency over the long term.
A variety of currencies circulated in China during the Republic of China (ROC) era, most of which were denominated in the unit "yu n" (pronounced ). Each was distinguished by a currency name, such as the fabi ("legal tender"), the "gold yuan", and the "silver yuan". The word yuan (written as (informally) or (formally)) in Chinese literally means round, after the shape of the coins. The Korean and Japanese currency units, won and yen respectively, are cognates of the yuan and have the same Chinese character (hanja/kanji) representation, but in different forms (respectively, / and / ), also meaning round in Korean and Japanese. However, they do not share the same names for the subdivisions. The principal unit of New Taiwan dollar, used in Taiwan as the currency of the Republic of China, is also referred to in the Chinese language as "yu n" (written as or ).
As the Communist Party of China took control of ever larger territories in the latter part of the Chinese Civil War, its People's Bank of China began in 1948 to issue a unified currency for use in Communist-controlled territories. Also denominated in yuan, this currency was identified by different names, including "People's Bank of China banknotes" (; from November 1948), "New Currency" (; from December 1948), "People's Bank of China notes" (; from January 1949), "People's Notes" ( , as an abbreviation of the last name), and finally "People's Currency", or "renminbi", from June 1949.
Production and minting
Renminbi currency production is carried out by a state owned corporation, China Banknote Printing and Minting (CBPMC; ) headquartered in Beijing. CBPMC uses several printing and engraving and minting facilities around the country to produce banknotes and coins for subsequent distribution. Banknote printing facilities are based in Beijing, Shanghai, Chengdu, Xi'an, Shijiazhuang, and Nanchang. Mints are located in Nanjing, Shanghai, and Shenyang. Also, high grade paper for the banknotes is produced at two facilities in Baoding and Kunshan. The Baoding facility is the largest facility in the world dedicated to developing banknote material according to its website. In addition, the People's Bank of China has its own printing technology research division that researches new techniques for creating banknotes and making counterfeiting more difficult.
The first series of renminbi banknotes was introduced by the People's Bank of China in December 1948, about a year before the establishment of the People's Republic of China. It was issued only in paper money form and replaced the various currencies circulating in the areas controlled by the communists. One of the first tasks of the new government was to end the hyperinflation that had plagued China in the final years of the Kuomintang (KMT) era. That achieved, a revaluation occurred in 1955, at the rate of 1 new yuan = 10,000 old yuan.
On December 1, 1948, the newly founded People's Bank of China introduced notes in denominations of 1, 5, 10, 20, 50, 100 and 1000 yuan. Notes for 200, 500, 5000 and 10,000 yuan followed in 1949, with 50,000 yuan notes added in 1950. A total of 62 different designs were issued. The notes were officially withdrawn on various dates between April 1 and May 10, 1955.
These first renminbi notes were printed with the words "People's Bank of China", "Republic of China", and the denomination, written in Chinese characters by Dong Biwu.
The name "renminbi" was first recorded as an official name in June 1949. After work began in 1950 to design the second series of the renminbi, the previous series were retroactively dubbed the "first series of the renminbi".
Second to fifth series
The second series of renminbi banknotes was introduced in 1955. During the era of the command economy, the value of the renminbi was set to unrealistic values in exchange with western currency and severe currency exchange rules were put in place. With the opening of the mainland Chinese economy in 1978, a dual-track currency system was instituted, with renminbi usable only domestically, and with foreigners forced to use foreign exchange certificates. The unrealistic levels at which exchange rates were pegged led to a strong black market in currency transactions.
In the late 1980s and early 1990s, the PRC worked to make the RMB more convertible. Through the use of swap centres, the exchange rate was brought to realistic levels and the dual track currency system was abolished.
The renminbi is convertible on current accounts but not capital accounts. The ultimate goal has been to make the RMB fully convertible. However, partly in response to the Asian financial crisis in 1998, the PRC has been concerned that the mainland Chinese financial system would not be able to handle the potential rapid cross-border movements of hot money, and as a result, as of 2012, the currency trades within a narrow band specified by the Chinese central government.
The fen and jiao have become increasingly unnecessary as prices have increased. Chinese retailers tend to avoid decimal values (such as 9.99), opting instead for integer values of yuan (such as 9 or 10).
In 1955, aluminium 1, 2 and 5 fen coins were introduced. In 1980, brass 1, 2, and 5 jiao and cupro-nickel 1 yuan coins were added, although the 1 and 2 jiao were only produced until 1981, with the last 5 jiao and 1 yuan issued in 1985. In 1991, a new coinage was introduced, consisting of an aluminium 1 jiao, brass 5 jiao and nickel-clad-steel 1 yuan. Issuance of the 1 and 2 fen coins ceased in 1991, with that of the 5 fen halting a year later. The small coins were still made for annual mint sets, and from the beginning of 2005 again for general circulation. New designs of the 1 and 5 jiao and 1 yuan were introduced in between 1999 and 2002. The frequency of usage of coins varies between different parts of China.
In 1955, notes (dated 1953), were introduced in denominations of 1, 2 and 5 fen, 1, 2 and 5 jiao, and 1, 2, 3, 5 and 10 yuan. Except for the three fen denominations and the 3 yuan, notes in these denominations continue to circulate, with 50 and 100 yuan notes added in 1980 and 20 yuan notes added in or after 1999.
The denomination of each banknote is printed in Chinese. The numbers themselves are printed in financial Chinese numeral characters, as well as Arabic numerals. The denomination and the words "People's Bank of China" are also printed in Mongolian, Tibetan, Uyghur and Zhuang on the back of each banknote, in addition to the boldface Hanyu Pinyin "Zhongguo Renmin Yinhang" (without tones). The right front of the note has a tactile representation of the denomination in Chinese braille starting from the fourth series.
The second series of renminbi banknotes (the first having been issued for the previous currency) was introduced on 1 March 1955. Each note has the words "People's Bank of China" as well as the denomination in the Uyghur, Tibetan, Mongolian and Zhuang languages on the back, which has since appeared in each series of renminbi notes. The denominations available in banknotes were 0.01, 0.02, 0.05, 0.1, 0.2, 0.5, 1, 2, 3, 5 and 10.
The third series of renminbi banknotes was introduced on April 15, 1962. For the next two decades, the second and third series banknotes were used concurrently. The denominations were of 0.1, 0.2, 0.5, 1, 2, 5 and 10. The third series was phased out during the 1990s and then was recalled completely on July 1, 2000.
The fourth series was introduced between 1987 and 1997, although the banknotes were dated 1980, 1990, or 1996. They are still legal tender. Banknotes are available in denominations of 0.1, 0.2, 0.5, 1, 2, 5, 10, 50 and 100.
In 1999, a new series of renminbi banknotes and coins was progressively introduced. The fifth series consists of banknotes for 1, 5, 10, 20, 50 and 100. Significantly, the fifth series uses the portrait of Mao Zedong on all banknotes, in place of the various leaders and workers which had been featured previously.
In 1999, a commemorative red 50 note was issued in honor of the 50th anniversary of the establishment of the People's Republic of China. This note features Mao Zedong on the front and various animals on the back.
An orange polymer note, and so far, China's only polymer note, commemorating the new millennium was issued in 2000 with a face value of 100. This features a dragon on the obverse and the reverse features the China Millennium monument (Center for cultural and scientific fairs).
For the 2008 Beijing Olympics, a green 10 note was issued featuring the Bird's Nest on the front with the back showing a classical Olympic discus thrower and various other athletes.
Suggested future design
On March 13, 2006, some delegates to an advisory body at the National People's Congress proposed to include Sun Yat-sen and Deng Xiaoping on the renminbi banknotes. However, the proposal was not adopted.
Before 2009, the Chinese renminbi had little to no exposure in the international markets because of strict government controls by the central Chinese government that prohibited almost all forms of yuan holdings or transactions. Transactions between Chinese companies and a foreign entity would have to be denominated in US dollars. With Chinese companies unable to hold US dollars and foreign companies unable to hold Chinese yuan, all transactions would go through the People's Bank of China. Once the sum was paid by the foreign party in dollars, the central bank would pass the settlement in renminbi to the Chinese company. In June 2009 the Chinese officials announced a pilot scheme where business and trade transactions were allowed between limited businesses in Guangdong and Shanghai municipalities and only counterparties in Hong Kong, Macau, and select ASEAN nations. Proving a success, the program was further extended to 20 Chinese provinces and counterparties internationally in July 2010, and in September 2011 it was announced that the remaining 11 Chinese provinces would be included.
In steps intended to establish the renminbi as an international reserve currency, China has agreements with Russia, Vietnam, and Thailand allowing trade with those countries to be settled directly in renminbi instead of requiring conversion to US dollars.
International reserve currency
Currency restrictions regarding renminbi denominated bank deposits and financial products were greatly liberalized in July, 2010. In 2010 renminbi denominated bonds were reported to have been purchased by Malaysia's central bank and that McDonald's had issued renmimbi denominated corporate bonds through Standard Chartered Bank of Hong Kong. Such liberalization allows the yuan to look more attractive as it can be held with higher return on investment yields, whereas previously that yield was virtually none. Nevertheless, some national banks such as Bank of Thailand (BOT) have expressed a serious concern about RMB since BOT cannot substitute the depreciated US Dollars in the 200 billion dollar Foreign Exchange Reserves held by BOT with Renminbi Yuan as much as BOT wishes because:
- The Chinese Government has not taken the full responsibilities and commitments on the economic affairs at the global levels.
- Renminbi Yuan still has not become well-liquidated (fully convertible) yet.
- The Chinese government still lacks deep and wide vision about how to perform fund-raising to handle international loans at global levels.
However HSBC expects the Renminbi to become the third major reserve currency in 2011.
Countries that are left-leaning in the political spectrum have also begun to use the Renminbi as an alternative reserve currency to the United States dollar; the Chilean central bank reported in 2011 to have US$91 million worth of Renminbi in reserves, and the president of the central bank of Venezuela, Nelson Merentes, made statements in favour of the Renminbi following the announcement of reserve withdrawals from Europe and the United States.
Use as a currency outside China
The two special administrative regions, Hong Kong and Macau, have their own respective currencies, according to the "one country, two systems" principle and the basic laws of the two territories. Therefore, the Hong Kong dollar and the Macanese pataca remain the legal tenders in the two territories, and renminbi, although sometimes accepted, is not legal tender. Banks in Hong Kong allow people to maintain accounts in RMB. Because of changes in legislation in July 2010, many banks around the world are now slowly offering individuals the chance to hold deposits in Chinese renminbi.
The RMB had a presence in Macau even before the 1999 return to the People's Republic of China from Portugal. Banks in Macau can issue credit cards based on the renminbi but not loans. Renminbi based credit cards cannot be used in Macau's casinos.
The current Republic of China government in Taiwan believes wide usage of the renminbi would create an underground economy and undermine its sovereignty. Tourists are allowed to bring in up to 20,000 renminbi when visiting Taiwan. These renminbi must be converted to the New Taiwan dollar at trial exchange sites in Matsu and Kinmen. The Chen Shui-bian administration insisted that it would not allow full convertibility until the mainland signs a bilateral foreign exchange settlement agreement, though president Ma Ying-jeou has pledged to allow full convertibility as soon as possible.
The renminbi is circulated in some of China's neighbors, such as Pakistan, Mongolia and northern part of Thailand. Cambodia welcomes the renminbi as an official currency and Laos and Myanmar allow it in border provinces. Though unofficial, Vietnam recognizes the exchange of the renminbi to the ng.
April 2011: In Hong Kong, the Chinese property investment trust, Hui Xian has raised Rmb10.48 billion ($1.6 billion) in the first Initial Public Offering with denomination in Renminbi. Beijing has allowed renminbi-denominated financial markets to develop in Hong Kong because the central Chinese government wants to increase the usage of renminbi in international market and consequently reduce the use of the US dollar.
Since 2007, RMB-nominated bonds are issued outside the Mainland China; these are called "dim sum bonds".
While the CNY is the RMB which is traded both onshore in China, and offshore (primarily in Hong Kong) are the same currency, they trade at different rates. This is by design: as regulation has explicitly kept onshore and offshore separated, the respective supply and demand conditions lead to separate market clearing exchange rates. Hence the emergence of a new currency code, CNH, to represent the exchange rate of RMB that trades offshore in Hong Kong. However, it does not end here. There is the traditional offshore RMB market, the dollar settled non-deliverable forward (NDF), which itself trades independently of either onshore CNY or offshore CNH, as well as a trade-settlement exchange rate (sometimes called CNT) to which offshore corporates have access, just to add to the complexity.
1 RMB to US dollar, since 1981 For most of its early history, the RMB was pegged to the U.S. dollar at 2.46 yuan per USD (note: during the 1970s, it was appreciated until it reached 1.50 yuan per USD in 1980). When China's economy gradually opened in the 1980s, the RMB was devalued in order to improve the competitiveness of Chinese exports. Thus, the official USD to RMB exchange rate declined from 1.50 yuan in 1980 to 8.62 yuan by 1994 (lowest ever on the record). Improving current account balance during the latter half of the 1990s enabled the Chinese government to maintain a peg of 8.27 yuan per USD from 1997 to 2005.
As of August 30, 2011, yuan's exchange rate at 6.38 to the U.S. dollar its highest official level since a currency revaluation in 2005. China's leaders raised the yuan to tame inflation, a step U.S. officials have pushed for years to help repair the massive trade deficit with China.
Depegged from the U.S. dollar
On July 21, 2005, the peg was finally lifted, which saw an immediate one-off RMB revaluation to 8.11 per USD. The exchange rate against the euro stood at 10.07060 yuan per euro.
However the peg was reinstituted unofficially when the financial crisis hit: "Under intense pressure from Washington, China took small steps to allow its currency to strengthen for three years starting in July 2005. But China 're-pegged' its currency to the dollar as the financial crisis intensified in July 2008."
On June 19, 2010, the People s Bank of China released a statement simultaneously in Chinese and English indicating that they would "proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility." The news was greeted with praise by world leaders including Barack Obama, Nicolas Sarkozy and Stephen Harper. The PBoC maintained there would be no "large swings" in the currency. The RMB rose to its highest level in five years and markets worldwide surged on Monday, June 21 following China's announcement.
China has shifted some of their reserves from dollar accounts to accounts in their competitor nations, leading these other nations to invest in dollars to keep their own currencies down.
The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the U.S. dollar against the RMB in the inter-bank foreign exchange market would be allowed to float within a narrow band of 0.3% around the central parity published by the People's Bank of China (PBC); in a later announcement published on May 18, 2007, the band was extended to 0.5%. The PRC has stated that the basket is dominated by the United States dollar, Euro, Japanese yen and South Korean won, with a smaller proportion made up of the British pound, Thai baht, Russian ruble, Australian dollar, Canadian dollar and Singapore dollar.
On April 10, 2008, it traded at 6.9920 yuan per US dollar, which was the first time in more than a decade that a dollar had bought less than seven yuan, and at 11.03630 yuan per euro.
Beginning in January 2010, Chinese and non-Chinese citizens have an annual exchange limit of a maximum of 50,000 USD. Exchange will only proceed if the applicant appears in person at the relevant bank and presents his passport or his Chinese ID; these deals are being centrally registered. The maximum withdrawal is 10,000 USD per day, the maximum purchase limit of USD is 500 per day. This stringent management of the currency leads to a bottled-up demand for exchange in both directions. It is viewed as a major tool to keep the currency peg, preventing inflows of 'hot money'.
A shift of Chinese reserves into the currencies of their other trading partners has caused these nations to shift more of their reserves into dollars, leading to no great change in the value of the Renminbi against the dollar.
Renminbi futures are traded at the Chicago Mercantile Exchange. The futures are cash-settled at the exchange rate published by the People's Bank of China.
Purchasing power parity
Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. One recent study suggests 37.5% undervaluation.
- Ansgar Belke, Christian Dreger und Georg Erber: Reduction of Global Trade Imbalances: Does China Have to Revalue Its Currency? In: Weekly Report. 6/2010, Nr. 30, 2010, , S. 222 229 (PDF-File; DIW Online).
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