Renminbi

2008/9 Schools Wikipedia Selection. Related subjects: Currency

Renminbi 人民币 (Chinese)
Renminbi banknotes of the 2005 series
ISO 4217 Code	CNY
Official user(s)	People's Republic of China ( mainland only)
Unofficial user(s)	Hong Kong  Macau
Inflation	8.7%
Source	National Bureau of Statistics of China, Feb 2008.
Pegged with	A basket of currencies
Subunit
1/10	jiao (角)
1/100	fen (分)
Symbol	¥
Nickname	kuài (块)
jiao (角)	máo (毛)
Plural	The language(s) of this currency does not have a morphological plural distinction.
Coins
Freq. used	1, 5 jiao, ¥1
Rarely used	1, 2, 5 fen
Banknotes
Freq. used	1, 5 jiao, ¥1, ¥5, ¥10, ¥20, ¥50, ¥100
Rarely used	2 jiao, ¥2
Central bank	People's Bank of China
Website	www.pbc.gov.cn

The renminbi ( simplified Chinese: 人民币; traditional Chinese: 人民幣; pinyin: rénmínbì; literally "people's currency") is the currency of the People's Republic of China (PRC)., whose principal unit is the yuan ( simplified Chinese: 元 or 圆; traditional Chinese: 圓; pinyin: yuán; Wade-Giles: yüan), subdivided into 10 jiao (角), each of 10 fen (分).

The renminbi is issued by the People's Bank of China, the monetary authority of the PRC. The ISO 4217 abbreviation is CNY, although also commonly abbreviated as "RMB". The Latinised symbol is ¥.

Etymology

A variety of currencies circulated in China during the Republic of China era, most of which were denominated in the unit " yuan". 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.

Renminbi means "people's currency". 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 Bank Notes" ( traditional Chinese: 中國人民銀行鈔票; simplified Chinese: 中国人民银行钞票; from November 1948), "New Currency" ( traditional Chinese: 新幣; simplified Chinese: 新币; from December 1948), "People's Bank of China Notes" ( traditional Chinese: 中國人民銀行券; simplified Chinese: 中国人民银行券; 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.

First renminbi yuan, 1948-1955

The first series of renminbi banknotes was introduced by the People's Bank of China in December 1948, about a year before the Chinese Communist Party's victory in the Chinese Civil War. 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.

Second renminbi yuan, 1955 -present

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.

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 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).

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.

Use outside mainland 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 pataca remain the legal tenders in the two territories, and renminbi, although accepted, is not legal tender.

The RMB is the second most popular currency in Hong Kong and is becoming the principal trading currency in the region. 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 can not be used in Macau's casinos.

The current Republic of China government on 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.

Cambodia and Nepal welcome the renminbi as an official currency and Laos and Myanmar allow it in border provinces. Though unofficial, Vietnam recognizes the exchange of renminbi to đồng.

Value of the renminbi

For most of its early history, the RMB was pegged to the U.S. dollar at an unrealistic level of 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 during the 1980s, the RMB was devalued in order to reflect its true market price (based on the black market trading) and to improve the competitiveness of Chinese export. Thus, the official RMB/USD exchange rate declined from 1.50 yuan in 1980 to 8.62 yuan by 1994 (worst 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. On July 21, 2005, the peg was finally lifted, which saw an immediate one-off RMB revaluation to 8.11 per USD. 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 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.

On July 16, 2008, the renminbi traded at 6.8128 yuan per U.S. dollar, which is a 21.48% increase and the highest rate since the removal of the peg. Earlier, on April 10, 2008, it traded at 6.9920 yuan per U.S. dollar, which is the first time in more than a decade that a dollar bought less than seven yuan.

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

Purchasing power parity

The World Bank estimated that, by purchasing power parity, one United States dollar was equivalent to approximately ¥1.9 in 2004.

The International Monetary Fund estimated that, by purchasing power parity, one United States dollar was equivalent to approximately ¥2.021 in 2004, ¥2.047 in 2005, ¥2.062 in 2006, and is expected to be equivalent to approximately ¥2.095 in 2007.