Chinese Yuan Renminbi (CNY)

What Is the Chinese Yuan Renminbi (CNY)?

The term Chinese yuan renminbi (CNY) refers to the currency used in the People's Republic of China. Although it may seem a little confusing because the names are often depicted together, they're actually two separate terms. A yuan acts as China's unit of account for its financial system and economy, which represents a single unit of money. The term renminbi, on the other hand, is the official name of the currency itself.

Understanding the Chinese Yuan Renminbi (CNY)

The Chinese yuan renminbi is the official currency of mainland China. As noted above, the term yuan refers to a single unit of the currency while the term renminbi refers to the actual name of the currency itself. The yuan is abbreviated as CNY while the renminbi is abbreviated as RMB. The latter was introduced to the country by the Communist People's Republic of China at the time of its founding in 1949.

China's national currency is issued by its central bank, the People's Bank of China (PBOC). The bank is headquartered in Beijing, the nation's capital. Along with printing the currency, the bank is also responsible for monetary and fiscal policy as well as financial regulation in China. The PBOC management team consists of a governor, six deputy governors, and a chief inspector.

The symbol for the currency is ¥. A single yuan is divided into 10 jiao. One jiao is further divided into 10 fen. Banknotes in circulation come in one, two, five, 10, 20, 50, and 100 yuan denominations, as well as one, two, and five jiao notes. The central bank also mints coins in one, two, and five fen. Coins are also issued in one and five jiao, along with one yuan denominations.

Several series of the renminbi were issued since the 1950s, each of which has its own banknotes and coins. The fifth series is now legal tender, leading the prior ones to be phased out. The CNY is not a free-floating currency system. Instead, it is managed through a floating exchange rate, which means it is allowed to float in a narrow margin around a fixed base rate determined with reference to a basket of world currencies. The CNY was pegged directly to the U.S. dollar until 2005.

You can tap into the Chinese market by investing in American depositary receipts or by purchasing China A-shares.

Special Considerations

As mentioned above, the terms yuan and renminbi are commonly used interchangeably or together in some parts of the world, so it's no surprise that their use often confuses investors. The term yuan renminbi, though, is a lot like the terms pound sterling and pound, which are used to describe the currency of the United Kingdom.

The pound sterling is the name of the British currency itself while pounds are a denomination of the pound sterling. You use pounds to purchase goods and services, not pounds sterling or sterling. Following this example, it's important to remember that you can refer to the currency in general as the renminbi. But references to monetary value and prices use the term yuan. For instance, the suggested retail price for a BMW 320Li M was ¥339,800 as of March 2019.

Devaluation

The CNY went through a steady stream of appreciation against the greenback, leading the country to devalue its currency several times in 2015. Chinese leaders said this was part of the country's market reform efforts. This, in turn, opened up a trade war with the U.S. calling China a currency manipulator, President Donald Trump imposed tariffs on Chinese goods starting in 2018. China responded with its own set of tariffs on American products.

Not only did devaluing the CNY make Chinese goods more affordable and attractive in international markets, but there was also another advantage for China. It became the first emerging market currency included in the International Monetary Fund's (IMF's) special drawing rights (SDR) basket — a reserve currency used by the IMF. The IMF added the CNY to the basket in Oct. 2016.