CNY - Chinese Yuan

Introduction to Chinese Yuan

The Chinese Yuan (CNY) is the official currency of the People's Republic of China, exclusively used within mainland China and not in regions like Hong Kong and Macau. It is regulated by the People's Bank of China (PBOC) and represented by the symbol 元 (yuán), with one Yuan subdivided into 10 jiao (角) and each jiao subdivided into 10 fen (分). 

As of April 2022, it ranks as the fifth most traded currency globally, reflecting China's growing economic influence.

In recent years, the Yuan has gained prominence in global markets due to China's increasing economic power and efforts to internationalize the currency. The establishment of offshore Yuan trading centers has enhanced the currency’s acceptance in international transactions. 

The PBOC manages the Yuan's reference exchange rate, allowing limited fluctuations to ensure stability while promoting flexibility. With ongoing reforms, the Chinese Yuan is expected to play a more significant role in global trade and investment.

Chinese Yuan denominations

The Chinese Yuan currently circulates in two forms: coins and banknotes with the following denominations:

Chinese Yuan banknotes

• Commonly used denominations: ¥1, ¥5, ¥10, ¥20, ¥50, ¥100

• Less frequently used denominations: ¥0.1, ¥0.5

Most Chinese Yuan banknotes feature the image of Mao Zedong, the revolutionary leader and founder of the People's Republic of China. His portrait appears on larger denominations, including ¥100, ¥50, and ¥20. Additionally, smaller denominations like ¥1 may display images of scenic landmarks such as the San Dàn Yìn Yuè.

Chinese Yuan coins

• Commonly used denominations: ¥0.1, ¥0.5, ¥1

• Less frequently used denominations: ¥0.01, ¥0.02, ¥0.05, ¥5, ¥10

Chinese coins are used for everyday transactions and are issued in various denominations, with ¥1 being the most common. They are made from an aluminum-magnesium alloy and have a shiny silver color. The front of the coins features the national emblem and the name of the country.

History of Chinese Yuan (CNY)

The Chinese yuan has its origins in the Spanish dollar, which was imported into mainland China in large quantities from the 16th to the 20th centuries. The Dragon Silver Dollar was officially introduced in 1889 and was the first widely accepted currency throughout China during the Qing Dynasty.

History of the CNY Issuance

• In 1948, the People's Bank of China officially introduced the yuan, issuing the first series of banknotes to replace the currencies circulating in areas controlled by the Communists. The Chinese government aimed to control and end hyperinflation following the establishment of the People's Republic of China.

• In 1955, the People's Bank of China issued the second series of banknotes to replace the first series.

• In 1962, the third series was released to replace the previous series.

• Between 1987 and 1997, the central bank continued to issue the fourth series, which replaced the third. 

• In 1999, the fifth series (the current series) was issued, including denominations ranging from 1 fēn to 100 yuan.

Development phases of Chinese Yuan

• From 1949 to the end of the 1970s, the Chinese state implemented a high fixed exchange rate to carry out the country’s import substitution strategy. During this period, China accelerated industrial development and reduced dependence on imported goods. The transition to a floating exchange rate system determined by supply and demand gradually took place over 15 years, which included loosening trade controls and allowing exporting companies to retain a portion of their foreign exchange earnings.

• From 1980 to 1994, a dual currency system and Foreign Exchange Certificates (FEC) were used for transactions with foreign customers. In 1994, the Chinese Yuan was officially devalued and replaced by the FEC.

• On November 30, 2015, the Chinese Yuan was officially added by the International Monetary Fund (IMF) to the basket of reserve currencies alongside the US dollar, euro, British pound, and yen. The Yuan also became the second most important currency for trade financing, following the US dollar, and ranked fifth in the global currency transaction share.\

History of Chinese Yuan exchange rate

The Chinese Yuan (CNY) has undergone significant fluctuations in its exchange rate.

• From 1949 to 1970, the exchange rate was adjusted from 2.46 CNY/USD down to just 1.50 CNY/USD. 

• Between 1980 and 1994, the value of the CNY was devalued to enhance the competitiveness of Chinese exports, reaching an exchange rate of 8.62 CNY/USD by 1994. 

• From 1997 to 2005, the Yuan maintained a fixed exchange rate at 8.27 CNY/USD. In 2005, China relaxed its exchange rate mechanism, allowing the CNY to appreciate to 8.11 CNY/USD. The exchange rate continued to be adjusted more flexibly, with the fluctuation range gradually increasing from about 0.3% to 2% by 2014.

• The highest value of the CNY against the USD was recorded in January 2014 at 6.0395 CNY/USD. However, in August 2015, the CNY was devalued again, raising the exchange rate to 6.38 CNY/USD.

Currently, the CNY operates under a managed floating exchange rate system based on market supply and demand, referencing a basket of international currencies. The Chinese government continues to implement strict controls on foreign exchange transactions to tightly manage the exchange rate and prevent speculative capital flows.

Factors affecting CNY/USD exchange rate

• Monetary policies from People's Bank of China: Decisions regarding interest rates and interventions in the foreign exchange market significantly impact the value of the CNY.

• Global economic conditions: Changes in the global economy, especially among China’s major trading partners, affect the demand for the CNY.

• Trade wars and political tensions: Factors such as the trade war with the United States can lead to significant fluctuations in the CNY/USD exchange rate.

The value of the Chinese Yuan (CNY) has undergone many changes throughout history, reflecting China’s economic development as well as global factors. The increasing role of the CNY in international markets also underscores China's trend of opening up and economic integration.