Renminbi
The renminbi (simplified Chinese: 人民币; traditional Chinese: 人民幣; pinyin: rénmínbì; lit. 'people's currency') is the official currency in the mainland of the People's Republic of China (PRC). It is issued by the People's Bank of China, the monetary authority of the PRC. The official ISO 4217 abbreviation is CNY, although also commonly abbreviated against ISO standard as "RMB."
Exchange rate
Mainland China's currency, which for the previous decade had been tightly pegged at 8.28 renminbi to the U.S. dollar, was revalued on July 21, 2005 to 8.11 per U.S. dollar, following the removal of the peg to the US dollar and pressure from the United States. The People's Bank of China also announced that the renminbi would be pegged to a basket of foreign currencies, rather than being strictly tied to the U.S. dollar, and would trade within a narrow 0.3 percent band against this basket of currencies. The PRC has stated that the basket is dominated by the U.S. dollar, euro, Japanese yen and South Korean won, with a smaller proportion made up of the British pound, Thai baht, Russian ruble, Australian dollar, Canadian dollar and Singapore dollar.
Renminbi units
The base unit of the renminbi is the yuan. As with Chinese numerals, this character has two forms — a common simplified form (元) and a formal form (圆) used to prevent alterations and accounting mistakes. One yuan is divided into 10 jiao (角). One jiao is divided into 10 fen (分). In colloquial usage, other names are frequently employed; see yuan for details.
The largest denomination of the renminbi is the 100 yuan note. The smallest is the 1 fen coin or note. One of the more interesting things to note is that all denominations are available as banknotes. The fen notes are now rather insignificant, and the design has not changed since 1953.
The word yuan is the usual translation for the word dollar, and the abbreviation RMB¥ is sometimes written as CN$.
Yuan in Chinese literally means a "round object" or "round coin". The Korean and Japanese currency names, Won and Yen respectively, have the same Chinese character (hanja/kanji) representation, but in different forms (respectively, 원/圓 and 円), also meaning round in Korean and Japanese. However, they do not share the same names for the aforementioned subdivisions.
Although shop prices in the PRC are usually marked with 元 after the digits, a Y with one crossbar (Ұ) (before the digits) is also common. The Y with one crossbar is represented by the same Unicode code point (¥) as the Japanese yen although the Japanese symbol tends to have two crossbars.
Denominations
The denomination of each banknote is given in Chinese. The numbers themselves are given in financial Chinese numeral characters, as well as Hindu-Arabic numerals. The denomination is also given in Mongol, Tibetan, Uyghur and Zhuang on the back of each banknote. On the front of the note is also the representation of the denomination in Chinese Braille.
Banknotes
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Coins
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RMB Series
4th Series
The 4th series, introduced in 1980 and 1990 (with the CNY 1 note getting another minor change in 1996), are still valid. In 2000, the People's Bank of China recalled the 3rd series, which were dated from the 1960s and the 1970s.
5th Series
In 1999, a new series of Renminbi banknotes and coins were progressively introduced. Affected were the following banknotes:
- CNY 100
- CNY 50
- CNY 20 (new with this series)
- CNY 10
- CNY 5
- CNY 1
The following coins were also affected:
- CNY 1
- CNY 0.5
- CNY 0.1
The new banknotes incorporate several measures to foil counterfeiting, including watermarks and inks that fluoresce under ultraviolet light. All but the CNY 1 banknote have a metallic strip, and the CNY 50 and CNY 100 banknotes also feature numbers which change colour when viewed from different angles. The portrayals of different nationalities of China, represented by a couple in ethnic dress on the front of previous banknotes, have also been uniformly replaced with the image of Mao Zedong. The most recent new banknote introduced was the CNY 1 note, introduced on July 30, 2004.
The 2005 Edition was introduced since August 31, 2005 with the following banknotes and coin affected:
- banknotes: CNY 100, CNY 50, CNY 20, CNY 10 and CNY 5
- coins: CNY 0.1
The style of those new banknotes and coins follows generally, with increased counterfeiting features. For the banknotes, the currency number at the bottom of the rear side is added with “YUAN” indicating the pinyin of “dollar”(圓) in Chinese language. The material of the new CNY 0.1 coin is stainless steel, switching from duralumin, a kind of metal alloy.
History
The renminbi was first issued shortly before the takeover of the mainland by the Communists in 1949. One of the first tasks of the new communist government was to end the hyperinflation that had plagued China near the end of the Kuomintang era.
During the era of the command economy, the value of the RMB was set to unrealistic values in exchange with western currency and severe currency exchange rules were put in place. With the opening of the mainland Chinese economy in 1978, a dual track currency system was instituted, with renminbi usable only domestically, and with foreigners forced to use foreign exchange certificates. The unrealistic levels at which exchange rates were pegged led to a strong black market in currency transactions.
In the late 1980s and early 1990s, the PRC worked to make the RMB more convertible. Through the use of swap centers, the exchange rate was brought to realistic levels and the dual track currency system was abolished.
The RMB is convertible on current accounts, but not capital accounts. The ultimate goal has been to make the RMB fully convertible. However, partly in response to the Asian financial crisis in 1998, the PRC has been concerned that the mainland Chinese financial system would not be able to handle the potential rapid cross border movements of hot money, and as a result, as of 2003, full convertibility remains a distant goal.
Exchange rate of the U.S. dollar vs. the renminbi
From 1994 until July 2005, the policy on currency has been to peg informally the value of the renminbi against the value of the United States dollar. This policy was praised during the Asian financial crisis of 1998 as it prevented a round of competitive devaluations.
In 2003, this policy came under criticism by the United States. The fall in the value of the dollar caused the value of the renminbi to fall also, making mainland Chinese exports more competitive. This led to some pressure on the PRC from the United States to increase the value of the RMB in order to encourage imports and decrease exports. This is a policy that some feel would preserve manufacturing jobs in the United States and a smaller trade deficit with mainland China. The G7 and European Union are also in favour of a re-evaluation of the exchange rate.
The PRC government has resisted pressure to increase the value of the RMB, out of concern that it would cause mainland Chinese jobs to disappear and would also expose domestic banks to currency risks that they are not prepared to handle. Many economists believe that only fixed exchange rates or floating exchange rates are stable over the long term, because a one-time change in exchange rates might cause speculators in the future to take positions on possible exchange rate fluctuations which would lead to pressure to completely float the currency.
The PRC government has also claimed that, while mainland China runs a large surplus with respect to the United States, its overall balance of payments is not out of balance.
Some independent analysts conclude that mainland Chinese currency is undervalued, because the People's Republic forbids citizens from moving their currency abroad. If this sort of financial diversification were allowed, the massive outflow of yuan could have a substantial effect on the currency.
Within the United States, the issue of appreciating the RMB is also controversial. Manufacturers and textile producers are in favor of appreciating the RMB. However, many American companies that depend on mainland Chinese factories to supply inexpensive products and components, such as aerospace companies, computer manufacturers, discount retailers, and other companies are against appreciating the RMB. Furthermore, many economists have pointed out that manufacturing jobs have been declining in the United States for decades. Some people have suggested that blaming the lack of job growth on the value of the RMB is merely a convenient misdirection on the part of the vested interests, including the George W. Bush administration, inefficient businesses, and labor unions fearful of competition.
However, the potential risk to global balances from mainland China’s inflexible exchange rate would be more critical if the PRC relaxed its controls on short-term investment flows without first introducing exchange rate flexibility. This is because shifting exchange rates nullify expected profits from investment flows seeking to take advantage of higher interest rates in another country. Without flexibility, speculative flows could quickly become large, as they did during the Asian financial crisis, and threaten economic stability and orderly world trade.
See also
- Hong Kong dollar
- Pataca (the currency of Macau)
- New Taiwan dollar
- State Administration of Foreign Exchange
- Classical Chinese coinage
External links
- Banknotes of China
- SinoBanknote
- Photographs of all Chinese currency and sound of pronunciation in Chinese
- What is the new Chinese currency regime?
- Economist article on Chinese currency valuation
- Discussion on how the basket peg works
- Buy Chinese Yuan?
- China Severs Its Currency's Link to Dollar, Washington Post, 21 July 2005
- China lifts currency basket lid, BBC, 10 August 2005