DEFINITION of 'CNY'

In currencies, CNY is the official abbreviation for the Chinese yuan, which is the unit of account for the Chinese currency: while the currency is formally called the renminbi, the formal name for one unit of that is the yuan. The renminbi is sometimes informally abbreviated as RMB, but CNY is the abbreviation used in all official and formal uses (such as foreign exchange screen quotes, publication of data in official documents, etc). The terms "yuan" and "renminbi" are often used interchangeably, especially by foreigners.

The Chinese central bank, the People's Bank of China (PBOC), is the monetary authority in China and implements exchange rate policy.

BREAKING DOWN 'CNY'

The CNY has been an increasing focus of foreign exchange markets since China began reintegrating into the world economy from the mid-1990s. The currency has never been freely floating, but has varied between a peg and a managed float. From January 1995 till July 2005, the PBOC set the CNY peg at 8.28 per U.S. dollar (USD) and it traded in a narrow range around this level. This peg was set at a deliberately weak rate in an effort to support Chinese exports, regarded by Chinese authorities then as the main engine for Chinese growth. Over time, as relatively cheap Chinese exports eventually became ubiquitous (and led in a number of instances to countries running large trade deficits with China), pressure arose on China to allow a more fair exchange rate.

Consequently, in July 2005 China revalued (appreciated) the CNY by 2.1% and implemented a managed float, linked to a basket of currencies. The yuan subsequently appreciated fairly steadily to reach levels around CNY6.80-6.90 per USD when the effects of the global financial crisis resulted in the PBOC once again pegging the CNY in July 2008, this time at 6.83 per USD (around the level it had by that stage reached during the managed float period). In July 2010, the PBOC once again allowed a managed float, and the CNY appreciated more or less steadily for the next few years, reaching its best levels of just over CNY6 per USD in late 2013 and early 2014. The yuan then depreciated fairly steadily from then to levels of just below seven by early 2017, and it has since once more appreciated somewhat, broadly trading in a range of around CNY6.30-6.50 per USD in the first half of 2018.

China's prominence in the world economy, the CNY's inclusion in the International Monetary Fund's Special Drawing Rights (SDR) basket, and the moves to a more flexible exchange rate policy have all helped the internationalization of the currency. In the latest Bank for International Settlements report (for 2016), the CNY had become the eighth-most traded currency in the world.

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