Chinese Yuan Renminbi (CNY) Definition

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 might seem a bit confusing because the names are often shown together, they are actually two distinct terms. One yuan acts as China’s unit of account for its financial system and economy, representing a single unit of currency. The term renminbi, on the other hand, is the official name of the currency itself.

Key points to remember

  • The Chinese yuan renminbi is the currency used in the People’s Republic of China.
  • The yuan is the actual monetary unit while the renminbi is the name of the currency itself.
  • The yuan is divided into 10 jiao and one jiao is divided into 10 fen.
  • Banknotes are printed in one, two, five, 10, 20, 50, and 100 yuan, as well as one, two, and five jiao.

Understanding the Chinese Yuan Renminbi (CNY)

The Chinese yuan renminbi is the official currency of mainland China. As stated 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. Yuan is abbreviated as CNY while Renminbi is abbreviated as RMB. The latter was introduced to the country by the communist People’s Republic of China when it was founded in 1949.

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

The currency symbol is ¥. A single yuan is divided into 10 jiao. A jiao is then divided into 10 fen. Tickets in traffic 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, as well as one yuan.

Several series of renminbi have been issued since the 1950s, each with its own banknotes and coins. The fifth series is now legal tender, resulting in the progressive abolition of the previous ones. The CNY is not a floating currency system. Instead, it is run by a Floating exchange rate, meaning it is allowed to float within a narrow margin around a fixed base rate determined by reference to a basket of global currencies. The CNY was pegged directly to the US dollar until 2005.

You can access the Chinese market by investing in US certificates of deposit or buying 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, however, is very similar to the terms pound sterling and pound, which are used to describe the currency of the United Kingdom.

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

Devaluation

The CNY has seen a steady stream of appreciation against the greenback, leading the country to devalue its currency several times in 2015. Chinese leaders said it was part of the country’s market reform efforts. This, in turn, opened a trade war with the United States calling China a currency manipulatorPresident Donald Trump imposed tariffs on Chinese goods starting in 2018.China responded with its own set of tariffs on American products.

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

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