Chinese currency is a hot topic for many reasons. Not only does it denote one of the world's biggest economic superpowers, but it is also central to one of the most debated issues involving China today—its mercantilist policy of artificial undervaluation of its currency against the U.S. dollar to give its exports an unfair price advantage. In recent years, there has been a consensus among economists that the Chinese currency has been undervalued in the 15% to 40% range for many years. However, the International Monetary Fund (IMF) stated in the summer of 2015 that the Chinese currency was no longer undervalued against the dollar given its recent appreciation.
Then, in the summer of 2018, the International Monetary Fund reported that the Chinese yuan was in line with fundamentals, only to then witness the yuan reach a 13-month low in response to an escalating tariff war with the United States. This drop prompted U.S. Treasury Secretary Mnuchin to comment that the Treasury was “going to very carefully review whether they have manipulated the currency.”
For years, the Chinese yuan renminbi (CNY) had never been close to being considered an international currency because of the Chinese government's rigid controls. However, this then began to change. According to a 2015 report by Standard Chartered Bank, the usage of renminbi (RMB) expanded 21 fold since 2010, and the currency appreciated by 25% vs. the dollar over the past 10 years. Additionally, Standard Chartered predicted that 28% of China's international trade will be denominated in RMB by the year 2020. In October 2016, the renminbi was added to the list of the top five most used currencies, in addition to the U.S. dollar, euro, yen and British pound, making it part of the IMF’s Special Drawing Rights Basket (SDR)—an international reserve asset that the IMF created as a supplement to member countries’ official reserves.
However, data reported by Swift, the global inter-bank system, revealed that only 1.6% of domestic and cross-border payments in December 2017 were denominated in renminbi. Michael Moon of Swift stated, ""The renminbi has had a difficult year in 2017 and struggled to realize its potential for growth." Swift's Alain Raes concurred, stating that the use of the currency had remained low and "the pace of adoption remains lower than expected."
For more about the Chinese currency today, read on. (For related reading, see: Is the Yuan the New Greenback?)
Renminbi vs. Yuan
With Beijing looking at the internationalization of its currency, one question continues to perplex many: Does China have two currencies? Does it use the yuan (¥), the renminbi (RMB) or both?
According to ECR Research: “China’s currency is officially called the renminbi. The yuan is the unit of account.” Renminbi translates to “the people’s currency” in Mandarin; it was first issued in December of 1948 with the establishment of the People’s Bank of China. Though the official abbreviation is CNY, the abbreviation as RMB is very common too. Yuan is also referred to as “kuài” in spoken Chinese.
Yuan is the unit of account, which means that the currency is denominated in 1 yuan, 2 yuan, 5 yuan, 10 yuan, 20 yuan, 50 yuan, or 100 yuan, though the paper money also comes in smaller denominations like fen and jiao. One yuan equals 10 jiao, which equals 100 fen.
Popular analogies given to explain the difference between yuan and renminbi are drawn from British pound sterling vs. the pound or Federal Reserve notes vs. the U.S. dollar. Any expression of price is always in dollar, pound, or yuan—not Federal Reserve notes, sterling, or renminbi. The price of any commodity or transaction would be $120, £100 or ¥150.
The People’s Bank of China makes the usage of renminbi and yuan somewhat clear in this statement: “In April, RMB settlement of cross-border trade in goods, cross-border trade in services and other current account terms, outward FDI (foreign direct investment) and inward FDI amounted to 481.6 billion, 57.5 billion, 20 billion and 80.3 billion yuan, respectively.”
Thus, while the bank talks about settlement of renminbi, the values are denominated in yuan.
The Bottom Line
The growth of Chinese currency is often a roller coaster. China has increased its attempts to back its currency, including promoting free usage of renminbi. Whether you know it as yuan or renminbi, what matters is that the currency from China remains a part of the currency conversation on the global stage. (For related reading, see: Is the Chinese Yuan a Good Investment?)