The history of the Chinese Yuan / Renminbi
When we talk about China we are referring to one of the world’s oldest and richest cultures which traces back thousands of years ago. The country was one of the pioneers to create currency in order to replace barter. Thus, its currency history is something that has a long interesting timeline enriched with curious facts that definitely worth a deeper look.
We won’t enter the details here, but, to sum up, the first objects used as currency by the Chinese were seashells. From these shells China developed its barter system, introduced a wide variety of objects that could be used as money (fabrics and knives, for instance) and, later on, bronze coins would be created as substitutes for those objects.
The currency called Yuan was introduced in 1889, influenced by the Spanish currency “peso”. By that time, the peso was widespread in South East Asia because of the Spanish presence in Guan and Philippines. Then, in 1903, the government started issuing other coins in the Yuan currency system. These were brass 1 cash, copper coins in the denominations of 2, 5, 10 and 20 and silver coins in 1, 2, and 5 cash.
The modern Yuan (CNY) which is also called Renminbi (RMB) appeared with the foundation of the People’s Bank of China, being issued in 1949. The translation of Renminbi is “people’s currency” and new stages of the Yuan came afterwards, like in 1962 when a third version of the coin was issued.
Finally, the fourth series of the Yuan took place between 1987 and 1997, accompanying China’s rapid development. The increase of retail sales in both, rural and urban areas, and the opening-up policy adopted by the country fostered the application of reforms that positively impacted the currency. Thus, certain upgrades and breakthroughs in the design, style and printing technique happened to the Renminbi.
What is the difference between the Chinese Yuan and Renminbi?
Actually there is no “truly” difference since both refer to China’s currency. Renminbi, however, is the official name of China’s currency, while Yuan is the name of a unit of the Renminbi. Thus, it will be wrong, for example, if you say that something costs 20 Renminbi.
Now, another interesting fact is that the Chinese don’t say that something costs 20 Yuan either. You must say “Kuài” (块), a colloquial expression.
You may be asking, why? Well, it is simply because of an ancient custom which Kuài used to refer to any coin made of silver or copper, and its translation from Mandarin simply means “piece”.
How is the Chinese Yuan / Renminbi written?
Nowadays there are banknotes of: 1, 2 and 5 jiao (or mao); and 1, 2, 5, 10, 20, 50 and 100 Yuan in circulation. It is important to understand that a single Yuan is worth 10 jiao.
Another interesting fact is that the official symbol for the Yuan is ¥, but almost everywhere in China you will find the Chinese character 元 instead. You can also refer to the Chinese Yuan as “CNY” (commonly used in the financial market), and Renminbi as “RMB”.
Finally, just to confuse you a bit more, there are two denominations for 1/10th of the Yuan. This can be called one "mao" or one "jiao”, and both refer to the same thing, with “mao” being more commonly speaked.
Which entity manages the Chinese Yuan?
The Central Bank of the People's Republic of China (PBOC) is responsible for the Chinese Yuan / Renminbi management. The institution was established on December 1, 1948, in Shijiazhuang, Hebei Province, after consolidating former Huabei Bank, Beihai Bank and Xibei Farmers Bank. As it was previously mentioned, the Renminbi was put into circulation almost at the same time of the Bank’s creation and, by that time, the main goal was to control the hyperinflation that was happening in China at the end of the Kuomintang era.
How is the Chinese Yuan valued?
The Chinese Yuan has been pegged to the US dollar since 1994, keeping the currency devalued against other countries. This way, China’s economic growth is benefited, once Chinese products become cheaper to export and the country becomes more competitive than others.
SInce 2005 the Chinese Yuan started a managed floating exchange rate, so it appreciated around 2.1% against the dollar. A series of movements from the PBC have been occurring then in order to control the oscillation.
To give a practical example of this control, let’s recap the Trade War between China and the United States. It all started in the middle of 2018, when the US placed a 25% duties on around US$34 billion of imports from China, and the Chinese, on the other hand, imposed a 25 % tariff on 545 goods from the US worth US$34 billion.
From that point a series of events happened and, in 2019, the PBOC let the Yuan reach a threshold level of 7 to the US dollar. This level was a mark, because it was the first time that the Yuan had crossed the “7 limit” since 2008.
The Chinese Yuan internationalization
The Yuan is a restricted currency, however, China has exceptions. Since January 2009, the country has performed bilateral swap agreements with 41 nations. Furthermore, although by May 2020, only 1.79% of global payments were made through the Renminbi, its internationalization index reached 5.02 at the end of 2020.
The number, which was presented in the 2021 RMB Internationalization Report , a research conducted by the International Monetary Institute (IMI), represented an astonishing increase of 54.2% compared to 2019. Consequently the Yuan became the third most internationalized currency in the world driven by the recovery of China’s economy, the boost in international currency cooperation, and financial sector opening-up.
China: a cashless society?
Have you ever heard about AliPay and WeChat Pay? Tencent and Alibaba are the owners of WeChat Pay and AliPay respectively. The duopoly revolutionized the payment industry in China, with Alibaba starting it in 2004 with a local e-commerce platform, and Tencent entering the scenario at the beginning of the last decade.
According to Statista, China is going cashless, and leads in the number of user members and mobile penetration rates (854 million payment users in 2020), while more than half of the Chinese population relies on mobile payments each quarter. This explains the importance of smartphones in this cashless trend. Additionally, the widespread adoption of QR Codes in China since 2014, driven by WeChat Pay, was also a major change for the whole Chinese society.
Finally, this year, the PBOC has been introducing the digital version of the Yuan, or the eRMB. Through this initiative the central bank aims to digitize bank notes and coins in circulation, and since Chinese society is already used to digital payments, the adoption could be much faster.
So, to finish this journey through the Renminbi history, here is a quote from Yan Xiao, project lead for digital trade at the World Economic Forum, which was given to CNBC in regards to the eRMB:
“The use of cash is decreasing. Eventually cash will be replaced by something in digital format. That is one of the big drivers behind this."