You may have noticed that the Chinese currency is sometimes called the yuan and sometimes called the renminbi. Which one is correct? Both!
Renminbi is the official government name for the currency and translates into “the people’s money.” The yuan is the actual unit of currency. The best analogy is with Great Britain, where sterling is the official name of Britain’s currency and the pound is the unit. “Pounds sterling” is roughly analogous to “yuan renminbi.”
Here are a few interesting facts about the currency, both historical and current.
- Subunits – The smaller units of currency are the jiao, which equals one-tenth of a yuan, and the fen, which equals one-one-hundredth of a yuan.
- Currency Pegs – China’s currency is not truly a free-floating currency; it is controlled through the People’s Bank of China (PBoC), the Chinese Central Bank. The PBoC established a peg in the 1990s, fixing the rate of the yuan to the American dollar at 8.28 yuan to the dollar. It eased the peg in 2005, allowing the currency to float within a small range of ± 0.3%. The range has slowly been widened over time, moving to ± 0.5% in 2007, ± 1% in 2012, and 2% in 2014.
As of this writing, the yuan is trading at approximately 6.26 to the dollar. Most analysts believe the yuan is significantly undervalued against the dollar and would rise sharply if the peg was removed. The PBoC caps the range by selling yuan and purchasing dollars, leading to large foreign exchange reserves (it topped $4 trillion during part of 2014).
- Holey Money – The first Chinese coins to be used across the country date back to approximately 221 BC and the Qin Dynasty. Known as the Ban Liang, they were round with a square hole in the middle that was believed to provide balance to the overall shape — yin and yang, if you will. The hole also conveniently allowed them to be carried in long strings of coins. These were replaced by bronze coins during the Tang Dynasty in 621 AD — but retained the hole in the center.
- Yuan Re-evaluations – The original centralized yuan banknotes were issued by the PBoC in 1948. The effects of massive inflation forced a reevaluation of the yuan in 1955, when new yuan notes were issued at the value of 1 to 10,000 of the old yuan. The current series of yuan, the fifth, was introduced in 1999.
- Currency Exceptions – The yuan is used throughout mainland China with the exception of Hong Kong, which retained use of the Hong Kong dollar even after Britain returned control of Hong Kong to the Chinese in 1997.
- Early Notes – The Chinese were the pioneers of paper money, presumed to date back to the 9th century. Even before that, banknotes were created out of leather made from deerskin all the way back to 118 BC — making these potentially the first banknotes ever created.
- Pieces of Eight – Believe it or not, the favorite bounty of pirates was commonly used in China during the late 16th century. They formed the basis of much of the international trading of the time, and were preferred in part because their silver content tended to hold their value better than bronze coins, copper coins, and banknotes.
China has a fascinating history of currency that literally dates back thousands of years. The yuan renminbi is probably in for a few more fascinating currency twists in turns this century as well — however, the PBoC and other central bankers prefer stable to fascinating.