Renminbi

The Renminbi (RMB) (sign: ¥; code: CNY) is the official currency of the People's Republic of China (PRC), whose principal unit is the Yuan. The currency is legal tender in mainland China, but not in Hong Kong and Macau.

Renminbi (simplified Chinese: 人民币; traditional Chinese: 人民幣; pinyin: rénmínbì; literally "people's currency"). The renminbi is issued by the People's Bank of China, the monetary authority of the PRC. At the moment it is mainly a domestic currency as it is not a free floating currency however given the size of the Chinese economy and its rapid growth, it is touted to become one of the major media of exchange.

A yuán (元) is also known colloquially as a kuài (块 - "lump", originally of silver). One yuán is divided into 10 jiǎo (角) or colloquially máo (毛 - "feather"). One jiǎo is divided into 10 fēn (分). In Cantonese, widely spoken in Guangdong, Hong Kong and Macau, kuài, jiǎo, and fēn are called mān (蚊), hòuh (毫), and sīn (仙), respectively. Sīn is a word borrowed into Cantonese from the English cent.

Etymology

 Chinese yuan

A variety of currencies circulated in China during the Republic of China (ROC) era, most of which were denominated in the unit "yuán" (pronounced [ɥɛn˧˥]). Each was distinguished by a currency name, such as the fabi ("legal tender"), the "gold yuan", and the "silver yuan". The word yuan in Chinese literally means round, after the shape of the coins. The Korean and Japanese currency units, won and yen respectively, are cognates of the yuan and have the same Chinese character (hanja/kanji) representation, but in different forms (respectively, 원/圓 and 円/圓), also meaning round in Korean and Japanese. However, they do not share the same names for the subdivisions. See also New Taiwan dollar, referred to as 元 or 圓 (both pronounced [jʏɛn˧˥]), for the currency of the Republic of China.

As the Communist Party of China took control of ever larger territories in the latter part of the Chinese Civil War, its People's Bank of China began in 1948 to issue a unified currency for use in Communist-controlled territories. Also denominated in yuan, this currency was identified by different names, including "People's Bank of China banknotes" (simplified Chinese: 中国人民银行钞票; traditional Chinese: 中國人民銀行鈔票; from November 1948), "New Currency" (simplified Chinese: 新币; traditional Chinese: 新幣; from December 1948), "People's Bank of China notes" (simplified Chinese: 中国人民银行券; traditional Chinese: 中國人民銀行券; from January 1949), "People's Notes" (人民券, as an abbreviation of the last name), and finally "People's Currency", or "renminbi", from June 1949.

Production and minting

A display in a Chinese bank detailing how to discern genuine 100 and 20 RMB notes from counterfeit versions.

Renminbi currency production is carried about by a state owned corporation, China Banknote Printing and Minting (CBPMC; 中国印钞造币总公司) headquartered in Beijing. CBPMC uses several printing and engraving and minting facilities around the country to produce banknotes and coins for subsequent distribution. Banknote printing facilities are based in Beijing, Shanghai, Chengdu, Xi'an, Shijiazhuang, and Nanchang. Mints are located in Nanjing, Shanghai, and Shenyang. Also, high grade paper for the banknotes is produced at two facilities in Baoding and Kunshan. The Baoding facility is the largest facility in the world dedicated to developing banknote material according to its website. In addition, the People's Bank of China has its own printing technology research division that researches new techniques for creating banknotes and making counterfeiting more difficult.

First series

The first series of renminbi banknotes was introduced by the People's Bank of China in December 1948, about a year before the establishment of the People's Republic of China. It was issued only in paper money form and replaced the various currencies circulating in the areas controlled by the communists. One of the first tasks of the new government was to end the hyperinflation that had plagued China in the final years of the Kuomintang (KMT) era. That achieved, a revaluation occurred in 1955, at the rate of 1 new yuan = 10,000 old yuan.

Banknotes

 First series of the renminbi

On December 1, 1948, the newly founded People's Bank of China introduced notes in denominations of 1, 5, 10, 20, 50, 100 and 1000 yuan. Notes for 200, 500, 5000 and 10,000 yuan followed in 1949, with 50,000 yuan notes added in 1950. A total of 62 different designs were issued. The notes were officially withdrawn on various dates between April 1, 1955 to May 10, 1955.

These first renminbi notes were printed with the words "People's Bank of China", "Republic of China", and the denomination, written in Chinese characters by Dong Biwu.

The name "renminbi" was first recorded as an official name in June 1949. After work began in 1950 to design the second series of the renminbi, the previous series were retroactively dubbed the "first series of the renminbi".

Second - fifth series

The second series of renminbi banknotes was introduced in 1955. During the era of the command economy, the value of the renminbi 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 centres, the exchange rate was brought to realistic levels and the dual track currency system was abolished.

The renminbi 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 2007, the currency trades within a narrow band specified by the Chinese central government.

The fen and jiao have become increasingly unnecessary as prices have increased. Chinese retailers tend to avoid decimal values (such as ¥9.99), opting instead for integer values of yuan (such as ¥9 or ¥10).

Coins

In 1955, aluminium 1, 2 and 5 fen coins were introduced. In 1980, brass 1, 2, and 5 jiao and cupro-nickel 1 yuan coins were added, although the 1 and 2 jiao were only produced until 1981, with the last 5 jiao and 1 yuan issued in 1985. In 1991, a new coinage was introduced, consisting of an aluminium 1 jiao, brass 5 jiao and nickel-clad-steel 1 yuan. Issuance of the 1 and 2 fen coins ceased in 1991, with that of the 5 fen halting a year later. The small coins were still made for annual mint sets, and from the beginning of 2005 again for general circulation. New designs of the 1 and 5 jiao and 1 yuan were introduced in between 1999 and 2002.

The use of coins varies from place to place. For example, coins are more often used for values less or equal to 1 yuan in Shanghai and Shenzhen but banknotes of the lower value are more often used than coins in Beijing and Xi'an]. Coins are used far less than banknotes in China nowadays. Use of coins in self-service ticket vending machines at metro stations may have contributed to the relatively frequent use of coins in Shanghai.

Banknotes

"People's Bank of China" written in 5 different languages. From top to bottom and left to right: Mandarin pinyin, Mongol, Tibetan, Uyghur, and Zhuang languages.

In 1955, notes (dated 1953), were introduced in denominations of 1, 2 and 5 fen, 1, 2 and 5 jiao, and 1, 2, 3, 5 and 10 yuan. Except for the three fen denominations and the 3 yuan, notes in these denominations continue to circulate, with 50 and 100 yuan notes added in 1980 and 20 yuan notes added in or after 1999.

The denomination of each banknote is printed in Chinese. The numbers themselves are printed in financial Chinese numeral characters, as well as Arabic numerals. The denomination and the words "People's Bank of China" are also printed in Mongol, Tibetan, Uyghur and Zhuang on the back of each banknote. The right front of the note has a tactile representation of the denomination in Chinese braille starting from the fourth series.

Collection of Chinese yuan (renminbi) banknotes. 1⁄10 yuan to 10 yuan notes are of the fourth series of the renminbi. 20 to 100 yuan (red) are of the fifth series of the renminbi. The polymer note on the lower right commemorates the third millennium.

Second series

 Second series of the renminbi

The second series of renminbi banknotes (the first having been issued for the previous currency) was introduced on 1 March 1955. Each note has the words "People's Bank of China" as well as the denomination in the Uyghur, Tibetan, Mongol and Zhuang languages on the back, which has since appeared in each series of renminbi notes. The denominations available in banknotes were ¥0.01, ¥0.02, ¥0.05, ¥0.1, ¥0.2, ¥0.5, ¥1, ¥2, ¥3, ¥5 and ¥10.

Third series

Third series of the renminbi

The third series of renminbi banknotes was introduced on April 15, 1962. For the next two decades, the second and third series banknotes were used concurrently. The denominations were of ¥0.1, ¥0.2, ¥0.5, ¥1, ¥2, ¥5 and ¥10. The third series was phased out during the 1990s and then was recalled completely on July 1, 2000.

Fourth series

Fourth series of the renminbi

The fourth series was introduced between 1987 and 1997, although the banknotes were dated 1980, 1990, or 1996. They are still legal tender. Banknotes are available in denominations of ¥0.1, ¥0.2, ¥0.5, ¥1, ¥2, ¥5, ¥10, ¥50 and ¥100.

Fifth series

Fifth series of the renminbi

In 1999, a new series of renminbi banknotes and coins was progressively introduced. The fifth series consists of banknotes for ¥1, ¥5, ¥10, ¥20, ¥50 and ¥100. Significantly, the fifth series uses the portrait of Mao Zedong on all banknotes, in place of the various leaders and workers which had been featured previously.

Commemorative designs

In 1999, a commemorative red ¥50 note was issued in honor of the 50th anniversary of the establishment of the People's Republic of China. This note features Mao Zedong on the front and various animals on the back.

An orange polymer note, and so far, China's only polymer note, commemorating the new millennium was issued in 2000 with a face value of ¥100. This features a dragon on the obverse and the reverse has a sundial.

For the 2008 Beijing Olympics, a green ¥10 note was issued featuring the Bird's Nest on the front with the back showing a classical Olympic discus thrower and various other athletes.

Possible future design

On March 13, 2006, some delegates to an advisory body at the National People's Congress proposed to include Sun Yat-sen and Deng Xiaoping on the renminbi banknotes. However, the proposal is a long way from becoming law.

International use

The People's Republic of China has made tentative steps toward establishment of the renminbi as an international currency using Hong Kong as a launching pad where currency restrictions regarding renminbi denominated bank deposits and financial products were greatly liberalized in July, 2010. In 2010 renminbi denominated bonds were reported to have been purchased by Malaysia's central bank and that McDonald's had issued renmimbi denominated corporate bonds through Standard Chartered Bank of Hong Kong.

Use as a currency outside China

The two special administrative regions, Hong Kong and Macau, have their own respective currencies. According to the "one country, two systems" principle and the basic laws of the two territories, national laws generally do not apply. Therefore, the Hong Kong dollar and the Macanese pataca remain the legal tenders in the two territories, and renminbi, although sometimes accepted, is not legal tender. Banks in Hong Kong allow people to maintain accounts in RMB.

The RMB had a presence in Macau even before the 1999 return to the People's Republic of China from Portugal. Banks in Macau can issue credit cards based on the renminbi but not loans. Renminbi based credit cards cannot be used in Macau's casinos.

The current Republic of China government in Taiwan believes wide usage of the renminbi would create an underground economy and undermine its sovereignty. Tourists are allowed to bring in up to 20,000 renminbi when visiting Taiwan. These renminbi must be converted to the New Taiwan dollar at trial exchange sites in Matsu and Kinmen. The Chen Shui-bian administration insisted that it would not allow full convertibility until the mainland signs a bilateral foreign exchange settlement agreement, though president Ma Ying-jeou has pledged to allow full convertibility as soon as possible.

The renminbi is circulated in some of China's neighbors, such as Pakistan, Mongolia and northern part of Thailand. Cambodia welcomes the renminbi as an official currency and Laos and Myanmar allow it in border provinces. Though unofficial[clarification needed], Vietnam recognizes the exchange of the renminbi to the đồng.

Value

 Renminbi currency value

For most of its early history, the RMB was pegged to the U.S. dollar at 2.46 yuan per USD (note: during the 1970s, it was appreciated until it reached 1.50 yuan per USD in 1980). When China's economy gradually opened in the 1980s, the RMB was devalued in order to improve the competitiveness of Chinese exports. Thus, the official RMB/USD exchange rate declined from 1.50 yuan in 1980 to 8.62 yuan by 1994 (lowest ever on the record). Improving current account balance during the latter half of the 1990s enabled the Chinese government to maintain a peg of 8.27 yuan per USD from 1997 to 2005.

As of August 2, 2010, the yuan is valued at 14.7 US cents (or 6.796 per US dollar),which is €0.112 (or 8.89794 per euro).

Depegged from the U.S. dollar

On July 21, 2005, the peg was finally lifted, which saw an immediate one-off RMB revaluation to 8.11 per USD. The exchange rate against the euro stood at 10.07060 yuan per euro.

However the peg was reinstituted unofficially when the financial crisis hit: "Under intense pressure from Washington, China took small steps to allow its currency to strengthen for three years starting in July 2005. But China "re-pegged" its currency to the dollar as the financial crisis intensified in July 2008." 

On June 19, 2010, the People’s Bank of China released a statement simultaneously in Chinese and English indicating that they would "proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility."  The news was greeted with praise by world leaders including Barack Obama, Nicolas Sarkozy and Stephen Harper. The PBoC maintained there would be no "large swings" in the currency. The RMB rose to its highest level in five years and markets worldwide surged on Monday, June 21 following China's announcement.

However China has simply shifted their reserves from dollar accounts to accounts in their competitor nations, leading these other nations to invest in dollars to keep their own currencies down. The result has been an international currency war.

Managed Float

The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the U.S. dollar against the RMB in the inter-bank foreign exchange market would be allowed to float within a narrow band of 0.3% around the central parity published by the People's Bank of China (PBC); in a later announcement published on May 18, 2007, the band was extended to 0.5%. The PRC has stated that the basket is dominated by the United States 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.

On April 10, 2008, it traded at 6.9920 yuan per US dollar, which is the first time in more than a decade that a dollar bought less than seven yuan,. and at 11.03630 yuan per euro.

Beginning in January 2010, Chinese and non-Chinese citizens have an annual quota to change a maximum of 50,000 USD. Exchange will only proceed if the applicant appears in person at the relevant bank and presents his passport or his Chinese ID; these deals are being centrally registered. The maximum withdrawal is 10,000 USD per day, the maximum purchase quota of USD is 500 per day. This stringent management of the currency leads to a bottled-up demand for exchange in both directions. It is viewed as a major tool to keep the currency peg, preventing inflows of 'hot money'.

A shift of Chinese reserves into the currencies of their other trading partners has caused these nations to shift more of their reserves into dollars, leading to no great change in the value of the Renminbi against the dollar.

Futures market

Renminbi futures are traded at the Chicago Mercantile Exchange. The futures are cash-settled at the exchange rate published by the People's Bank of China.

Purchasing power parity

Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis.

The World Bank estimated that, by purchasing power parity, one International dollar was equivalent to approximately RMB1.9 in 2004.

The International Monetary Fund estimated that, by purchasing power parity, one United States dollar was equivalent to approximately RMB3.462 in 2006, RMB3.621 in 2007, and RMB3.798 in 2008.

(source:wikipedia)