Understanding the Chinese currency

The renminbi (RMB) is the official currency of the People’s Republic of China. In April 2022, it is the fifth most traded currency in the world. This is primarily due to active foreign trade with leading economies: While China accounts for 10% of the total foreign trade volume in Germany, the US is at just under 15% and Brazil even at 27%.

The Chinese currency over the course of time

The official currency of the People’s Republic of China, the renminbi (RMB) or Chinese yuan (CNY), has undergone massive changes over the last few decades. Under Deng Xiaoping, China initiated its first comprehensive economic reform and opening-up in 1978. This led to a number of changes in the economic and financial system.

In 1994, China introduced a flexible exchange rate system that controlled the exchange rate against the US dollar. This peg to the US dollar was removed in 2005 to make the Chinese currency an international reserve currency. Since then, the Chinese currency has fluctuated within a small range compared to a basket of currencies consisting of half US dollar, half euro and half yen.

Renminbi: The Chinese currency

While the currencies of most industrialized countries have floating exchange rates that function according to the principle of supply and demand, the Chinese currency RMB is a so-called controlled exchange rate.

This exchange rate system allows the People’s Bank of China (PBOC), China’s central bank, to regularly intervene in the foreign exchange markets to change the direction of the currency’s exchange rate and reduce the level of volatility.

RMB, CNH and CNY: What are the differences?

There are several names for the Chinese currency. Although renminbi (RMB) and Chinese yuan (CNY) are often used interchangeably, the yuan is technically a unit of the renminbi currency.

The situation is different with the CNH. In China’s dual currency system, the offshore yuan (CNH) is used for international payments, while the onshore yuan (CNY) is used for domestic trade.

The onshore yuan CNY is subject to stronger capital movement restrictions. This means that it can be more difficult for foreigners and foreign companies to purchase or trade CNY, especially in larger quantities. The offshore yuan CNH, on the other hand, is subject to less stringent restrictions and can be traded more easily by foreign investors.

This has allowed the Chinese government to internationalize the Chinese currency while maintaining a certain degree of control over the flow of capital to ensure the stability of the Chinese economy.

The exchange rate between CNY and CNH may vary slightly. As a rule, however, the exchange rate between the two currencies should be very close to each other.

The Chinese currency exchange rate

From 2005 to mid-2013, the RMB strengthened by 34% in nominal terms against the US dollar, peaking at just under 6 RMB per 1 USD in 2010. This is a result of China’s efforts to promote consumption-based growth with a stronger RMB at home.

Optimizing Chinese exchange rates for companies

If you do not want to hedge your business against fluctuations and pay your suppliers in renminbi, you need to place spot orders, i.e. make a transaction immediately at the current exchange rate. This can have a positive effect if the renminbi depreciates, but can also drive up your costs if the renminbi appreciates at that time.

Fortunately, companies have a variety of options to protect themselves against fluctuations and gain more planning certainty. Among the most common are limit orders, forward contracts or non-binding exchange rate alerts to stay on top of the situation.

If you want to exchange your own currency for renminbi, you can place a limit order to ensure that you only receive renminbi at an exchange rate you specify. Forward orders, on the other hand, contractually commit you to buy or sell a certain amount of renminbi at a pre-determined exchange rate at a fixed time in the future.

Limit orders and forward contracts can significantly reduce the fx rate rate risk and give you more certainty in accurately estimating the costs of your suppliers and business partners.

amnis optimizes your exchange rates for the Chinese currency

amnis is a global financial services provider that helps you hedge against exchange rates and benefit from low transaction costs.

With automated currency exchange at your desired target rate, you can set your exchange rate and automatically complete the trade as soon as the target rate is reached in the currency market, with no hidden fees and at the lowest rates (amnis’ highest margin is 0.4%). Automatic currency purchases, e.g. a certain amount every week, ensure that there is always enough money in your CNY account.

Simultaneously, you can also reduce the cost of international payments. With amnis, companies receive a multi-currency account that can be used to send and receive 20+ currencies, including CNY. The different currencies are received and stored centrally in one place, greatly simplifying your account management. You can also use amnis to make local payments in many countries, e.g. via SEPA in EUR or via ACH in USD, no matter where you are.

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