The Chinese renminbi (CNY) is one of the top-ten most traded currencies by value on the FX market. If you are an FX trader looking to diversify and add something a little bit more unsual than USD,EUR, JPY and GBP to your portfolio, the CNY is definitely worth looking into.
The Chinese renminbi, colloquially referred to as the yuan, is the official currency of the People´s Republic of China and issued by the People´s Bank of China (PBoC).
In addition to being an extensively traded currency, it is also the 7th most held reserve currency and accounts for an estimated 1.23% of global currency reserves.
Floating within a band
For many years, the renminbi was pegged against the United States dollar, but PBoC has now loosened up its monetary policy and is allowing the CNY to float – albeit within a narrow band – against a basked of major currencies.
Some analysts believe that the PBoC might be looking to allow a free float in the future, but others have pointed out that this would be very risky since a strong CNY could have a seriously negative impact on China´s highly export-reliant economy.
Having a weak national currency (in relation to major currencies) has made China´s exports more competitive and helped the country maintain a trade surplus with many countries around the globe.
Trading in CNY or CNH? What about RMB?
The ISO 4217 code for the Chinese renminbi is CNY, which is derived from Chinese yuan. This code is widely used in international finance and by FX traders around the globe. You should be aware, however, that Hong Kong markets that trade renminbi at free-floating rates use the code CNH instead in order to distinguish their rates from the official PBoC rate.
In mainland China, you might come across the acronym RMB, but this is not an official currency code.
While the name of the currency is renminbi, yuan is the name of the currency´s primary unit. In everyday Mandarin, money is typically referred to as kuai, which means piece.
During China´s command economy epoch, severe currency exchange rules were in place and the renminbi exchange rate was pegged at highly unrealistic levels.
A dual-track currency system was launched as China´s economy began to open up in the late 1970s. Still, the renminbi was only usable domestically and foreign visitors to China had to use foreigh exchange certificates.
Starting in the late 1980s, the government of China made the renminbi more convertable. The dual-track system was abolished, swap centres were utilized and the exchange rate was brought to more realistic levels.
Today, the renminbi is convertable on currency accunt but not capital accounts. The Chinese government is working to make the renminbi fully convertible, but is also worried about how the Chinese financial system would handle rapid cross-border movements of money. As mentioned above, the CNY is still only floated within a narrow band set by the Chinese government.
The internationalization of the renminbi took place on 30 November, 2015. By then, the renminbi was already the second-most used currency for trade and services, and had reach #9 on the FX market. Following the internationalization of the renminbi, the International Monetary Fund (IMF) voted to designate the renminbi as a main world currency and include it in the basket of special drawing rights. On October 1, 2016, the renminbi became the first emerging market currency ever to be included in this basket.
Short facts about the Chinese renminbi
Name: Chinese renminbi. (The name renminbi means ”the people´s currency”.)
ISO 4217 code: CNY
Symbol: ¥ (CN¥ when there is a need to distinguish it from the Japanese yen)
Issuer: The People´s Bank of China (PboC)
Printer: China Banknote Printing and Minting Corporation
The CNY is the offical currency of the People´s Republic of China. It is also widely used in the Macao Special Administrative Region of the People’s Republic of China, even though Macao´s official currency is the Macanese pataca (MOP).
In some of China´s neighbouring countries, the CNY is widely used despite not being the official currency. This includes Laos, Cambodia, North Korea, Myanmar/Burma, and Nepal.
The CNY is one of several foreigh currencies used in Zimbabwe since the collapse of the country´s national currency.