The Difference Between Yuan vs. Renminbi

An Overview of the Yuan vs. the Renminbi

There are many reasons why the Chinese currency is a hot topic right now. One of the most hotly debated issues in China today revolves around its perceived mercantilist policy of artificially undervaluing its currency against the US dollar in order to give its exports an unfair price advantage over those of other countries.

In the 15 to 40 percent range, economists had long agreed that the Chinese currency had been undervalued for many years. Amidst this, the International Monetary Fund (IMF) declared in July of this year that China’s yuan was no longer undervalued against the US dollar.

The Yuan (CNY) and the people’s renminbi (RMB) are two distinct forms of Chinese currency (RMB). However, while the renminbi serves as a medium of exchange in China, it is actually the yuan that is used to measure China’s economic and financial output.

Understanding the Difference between the RMB and the Yuan

Anyone who has money can participate in the market as an equal. Buying an item or service with money is effectively making a bid in response to an asking price when consumers use their money to do so. As a result of this interaction, the market is able to function more smoothly and predictably. Consumers can plan their budgets based on predictable and stable pricing models, while producers know exactly what to produce and how much to charge.

There are times where the value of money (represented by a currency) is no longer viable as a medium of exchange. As a result, customers are unable to budget effectively and retailers are unable to accurately assess supply and demand. In other words, increased market volatility will result in a state of chaos.

Fears of scarcity and the unknown lead to an increase in the price of goods and services. Supply is also decreasing due to hoarding habits and the inability of manufacturers to rapidly replenish inventory.

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Unit of Account: the Dollar

A unit of account (also known as a numeraire) is a monetary unit used to measure the value of other monetary units. It is common for a single product to serve as the numeraire for an index or market. It is possible to compare the value of goods by using a numeraire, or base value. Numeraire is essentially the standard of value in an exchange, and it acts as such.

Consider the mid-twentieth century currency valuations under the Bretton Woods Agreement and System as an example of a numeraire. At $35 per ounce of gold, the US dollar (USD) was established. A multiple or a fraction of a dollar was then used to price every other currency. Because it was tied to the price of gold, the USD served as the de facto benchmark or numeraire.

Most commodity prices are still expressed in terms of the U.S. dollar today. Commodity prices can be standardized by denominating them in the US dollar, which is the world’s most traded and liquid currency. The price of oil, for example, is denominated in US dollars, which makes it easy for companies to convert payments or receipts in a timely manner.

Differences in CNY vs. RMB

Is China one country with two currencies or is it a country with a currency that is both domestic and international? Is it based on the yuan () or the renminbi (RMB)?

Mandarin-speaking Chinese refer to it as renminbi, which is the official currency of China and means “people’s money” in English. China’s currency is represented by the yuan. It’s not uncommon to hear the terms renminbi and yuan used interchangeably. About a year before overthrowing the Kuomintang government, the Communist Party of China established the People’s Bank of China and issued the first RMB in December 1948. Although the official abbreviation is CNY, RMB is also widely used. Prices in China are often expressed in kuai, which means “pieces,” and is akin to the way Americans say “bucks” to mean “dollars” when they shop.

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It is the yuan that serves as the currency. After the 100 yuan note, there are 50, 20, 10, 5, 2, and 1 banknotes, which are all smaller than the 100 yuan note. Jiao and fen can be subdivided from a single yuan. There are 10 jiao in a yuan and 100 fen in a yuan (think dimes and quarters) (think pennies in a dollar). Jiao and fen coins and notes have been issued by the central bank, but fen notes are extremely rare.

The British pound sterling vs. the pound and the Federal Reserve notes vs. the dollar are popular examples of how the yuan and renminbi differ. You can’t use Federal Reserve notes or sterling notes to express the price of something. For any commodity or transaction, the price would be $120 (£100), £100 (150).

Controversy Over the Value of the Chinese Yuan

It was reported by the IMF that the Chinese yuan was in line with fundamentals in the summer of 2018, only to see it plummet in response to an intensifying tariff war with the United States and hit a 13-month low in September 2018. As a result of this decline, U.S. Treasury Secretary Steven Mnuchin stated that the department would “very carefully review” whether or not they had manipulated currency.

As a result of the Chinese government’s strict controls, the Chinese yuan renminbi (CNY) was never considered an international currency.

However, things began to change after this point. The use of RMB for international trade has increased 21-fold since 2010, according to a 2015 report by Standard Chartered Bank, and it expects that nearly half of China’s goods trade will be invoiced in RMB by 2020.

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IMF’s Special Drawing Rights Basket—an international reserve asset that the IMF created as a supplement to member countries’ official reserve assets—included the renminbi in October 2016.

In December 2017, only 1.6% of domestic and cross-border payments were made in renminbi, according to data from Swift, the global inter-bank system. For the year 2017, “the renminbi has had a difficult year, and has struggled to realize its growth potential,” Swift’s Michael Moon said. It was also noted by Swift’s Alain Raes that “the pace of adoption remains lower than expected” as the currency’s use remained low.

The End of the Story

There are many ups and downs when it comes to China’s currency. The Chinese government has stepped up its efforts to support the renminbi, including allowing free use of the currency. It doesn’t matter if you refer to it as the yuan or the renminbi; what matters is that China’s currency is still a topic of discussion around the world.

The following are the most important takeaways.

  • Officially, China’s currency is referred to as the renminbi by Chinese officials. The currency of China is the yuan.
  • A currency’s medium of exchange is how it is used to buy and sell goods and services.
  • The function of money is to price things in terms of standardized units, which is the unit of exchange.
  • The renminbi has been added to the IMF’s Special Drawing Rights Basket, which is a list of the world’s most frequently used currencies.
  • A statement from the International Monetary Fund stated that China’s currency is no longer undervalued against the dollar, but recent devaluations in 2019 may change that outlook.
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