If you’re planning to send money to China or travel there, you might be wondering about the different terms used for the country’s currency. You may hear people refer to it as RMB, renminbi, yuan, CNY, or CNH. Additionally, you’ll come across terms like jiao and fen. In this article, we’ll clarify these terms and explain the differences, making it easier for you to understand what they all mean.
Sending Money to China?
Get competitive exchange rates, no payment fees, and most of our SWIFT GPI payments arrive within an hour.
The Renminbi (RMB)
The term Renminbi (RMB) translates to “the people’s currency” from Mandarin, and it is the official currency of the People’s Republic of China. It refers to the currency system as a whole. The RMB was introduced in 1949 by the People’s Bank of China (PBOC), replacing the previous currency known as the “fabi” to stabilise the Chinese economy after years of hyperinflation. The RMB can be broken down into subunits: 1 Yuan (元) = 10 Jiao (角) = 100 Fen (分).
RMB is the broad term encompassing all forms of China’s currency, whether used domestically or internationally.
Chinese Yuan (CNY)
The Chinese Yuan (CNY) is the primary unit of the Renminbi. “Yuan” is the base unit of the currency, much like the “dollar” in the United States or the “euro” in the Eurozone. In the international finance and foreegn exchange markets, CNY is the ISO code used to denote the Chinese Yuan traded within mainland China.
Key Points about CNY:
- Currency Code: CNY
- Usage: Primarily within mainland China
- Exchange Rate Management: Managed floating exchange rate, influenced by the PBOC
- Regulation: Subject to strict capital controls
CNY is the form of RMB that is traded domestically and subject to China’s capital controls, meaning it is not freely convertible without restrictions.
Chinese Yuan Offshore (CNH)
The Chinese Yuan Offshore (CNH) represents the Chinese Yuan traded outside of mainland China, particularly in international markets like Hong Kong, Singapore, and London. The introduction of CNH was part of China’s efforts to internationalise its currency without fully liberalising its domestic financial markets.
Key Points about CNH:
- Currency Code: CNH
- Usage: Internationally, outside of mainland China
- Exchange Rate Management: Market-driven, less influenced by the PBOC compared to CNY
- Regulation: Freely convertible without the same restrictions as CNY
CNH allows for a more flexible exchange rate determined by international market forces, reflecting the global supply and demand for the Chinese currency.
Differences Between CNY, CNH, and RMB
Geographical Usage:
- RMB: General term for the Chinese currency used both domestically and internationally.
- CNY: Used within mainland China under strict regulatory oversight.
- CNH: Used in international markets, providing more flexibility and less regulatory control.
Exchange Rate Control:
- CNY: Subject to the PBOC’s intervention and capital controls, leading to a managed floating exchange rate.
- CNH: More market-driven with minimal PBOC intervention, reflecting international demand and supply dynamics.
Convertibility:
- CNY: Not freely convertible due to capital controls. Conversion requires adherence to regulatory guidelines.
- CNH: Freely convertible in offshore markets, providing greater ease for international transactions and investments.
Purpose and Policy:
- CNY: Supports domestic economic policies and stability, ensuring controlled economic growth and financial stability within China.
- CNH: Facilitates international trade and investment, aiding in the RMB’s internationalisation without exposing the domestic economy to full liberalisation risks.
Implications for CNH and CNY in Cross-Border Payments
When sending funds to mainland China to pay suppliers, UK businesses typically send funds in US Dollars. However, some companies pay in CNY, and CNY is becoming an increasingly popular payment method over time. When you convert money to pay a supplier in China in CNY, you might wonder how the Rutland FX platform can facilitate CNY if it is used in mainland China. Should it not be CNH, the offshore currency? That would be correct.
Here’s how it works: our CNY payments are facilitated through Currencycloud, which uses a banking partner that is a member of CIPS (Cross-Border Inter-Bank Payments System). This ensures CNH is converted to CNY at a 1:1 exchange rate upon reaching mainland China, eliminating the need for a second FX conversion in China.
Therefore, although the platform shows CNY, when you purchase CNY on our platform, you are actually purchasing CNH. Whether it becomes CNY or CNH for the beneficiary depends on their location. If the beneficiary is in China, it will land as onshore CNY, and if the beneficiary is outside of China, it will land as CNH.
The Path Forward: RMB Internationalisation
China’s strategy to internationalise its currency involves a gradual approach. By promoting the use of CNH in global markets, China can increase the RMB’s role in international trade and finance while maintaining control over its domestic financial system.
Key Initiatives for RMB Internationalisation:
- Bond Issuance: Offshore issuance of RMB-denominated bonds, known as “dim sum bonds,” to attract foreign investors.
- Bilateral Swap Agreements: Agreements with other central banks to facilitate trade and investment using RMB.
- RMB Clearing Banks: Establishing RMB clearing banks in major financial centers to support RMB transactions.
These initiatives aim to build confidence in the RMB and encourage its adoption as a global currency, paving the way for a more significant role in the international financial system.
Still not sure?
If you are still unsure or have any further questions, please call us on 0203 026 0112 or request a callback below to discuss your requirements.