Yuan vs. Renminbi: Which Is It?

There had been a consensus among economists that the Chinese currency has been undervalued in the 15% to 40% range for many years.  However, the International Monetary Fund (IMF) stated that the Chinese currency was no longer undervalued against the dollar given its recent appreciation.

Chinese money, however, comes by two names: The Yuan (CNY) and the people's renminbi (RMB). The distinction is subtle: while renminbi is the official currency of China where it acts as a medium of exchange. 

Source: https://en.wikipedia.org

Today, the U.S. dollar remains the numeraire for most commodity prices. Denominating commodity prices in the U.S. dollar standardizes the price as the USD is the most traded and liquid currency in the world. For example, companies that engage in oil transactions can easily convert payments or receipts in a timely manner since the price of oil is denominated in USD. 

With Beijing looking at the internationalization of its currency, one question continues to perplex many: Does China have two currencies? Does it use the yuan (¥), the renminbi (RMB), or both?

Renminbi is the official currency of the People's Republic of China and means "people's currency" in Mandarin. The yuan is a unit of the currency. Renminbi and yuan are often used interchangeably.  The communist party established the People’s Bank of China and issued the first RMB in December 1948.

Yuan is the unit of account. The largest banknote is 100 yuan, followed by 50-yuan, 20-yuan, 10-yuan, 5-yuan, 2 yuan and 1 yuan. One yuan can be further divided into jiao and fen. There are 10 jiao in a yuan (think dimes in a dollar) and 100 fens in a yuan.  The central bank has issued both coins and notes for jiao and fen, though notes for fen denominations are rare. 

For years, the Chinese yuan renminbi (CNY) had never been close to being considered an international currency because of the Chinese government's rigid controls. However, this then began to change. According to a 2015 report by Standard Chartered Bank, usage of RMB for international trade expanded 21-fold since 2010, and it expected that almost half of China's goods trade would be invoiced in RMB by 2020.

In October 2016, the renminbi was added to the list of the top-five most-used currencies, in addition to the U.S. dollar, euro, yen, and British pound, making it part of the IMF’s Special Drawing Rights Basket—an international reserve asset that the IMF created as a supplement to member countries’ official reserves.

However, data reported by Swift, the global inter-bank system, revealed that only 1.6% of domestic and cross-border payments in December 2017 were denominated in renminbi. 

The growth of Chinese currency is often a roller coaster. China has increased its attempts to back its currency, including promoting free usage of the renminbi. Whether you know it as a yuan or renminbi, what matters is that the currency from China remains a part of the currency conversation on the global stage.

Reference:

Yuan vs. Renminbi: What’s the difference, Christina Majaski, 29 April 2021, 

https://www.investopedia.com