The distinction between the terms renminbi and yuan is similar to that between sterling and pound , which respectively refer to the British currency and its primary unit. The renminbi is issued by the People's Bank of China , the monetary authority of China. Until , the value of the renminbi was pegged to the US dollar. As China pursued its transition from central planning to a market economy , and increased its participation in foreign trade, the renminbi was devalued to increase the competitiveness of Chinese industry.
It has previously been claimed that the renminbi's official exchange rate was undervalued by as much as The Chinese government has announced that it will gradually increase the flexibility of the exchange rate. As a result of the rapid internationalization of the renminbi , it became the world's 8th most traded currency in ,  and 5th by On 1 October , the RMB became the first emerging market currency to be included in the IMF 's special drawing rights basket, the basket of currencies used by the IMF reserve currency.
The renminbi is legal tender in mainland China , but not in Hong Kong or Macau. Each was distinguished by a currency name, such as the fabi "legal tender" , the "gold yuan", and the "silver yuan".
The renminbi was introduced by the People's Bank of China in December , about a year before the establishment of the People's Republic of China.
It was issued only in paper money form at first, and replaced the various currencies circulating in the areas controlled by the Communists. One of the first tasks of the new government was to end the hyperinflation that had plagued China in the final years of the Kuomintang KMT era. As the Communist Party of China took control of ever larger territories in the latter part of the Chinese Civil War , its People's Bank of China began in to issue a unified currency for use in Communist-controlled territories.
Also denominated in yuan , this currency was identified by different names, including "People's Bank of China banknotes" simplified Chinese: From until the late s, the state fixed China's exchange rate at a highly overvalued level as part of the country's import -substitution strategy. During this time frame, the focus of the state's central planning was to accelerate industrial development and reduce China's dependence on imported manufactured goods.
The overvaluation allowed the government to provide imported machinery and equipment to priority industries at a relatively lower domestic currency cost than otherwise would have been possible.
China's transition by the mids to a system in which the value of its currency was determined by supply and demand in a foreign exchange market was a gradual process spanning 15 years that involved changes in the official exchange rate, the use of a dual exchange rate system, and the introduction and gradual expansion of markets for foreign exchange. The most important move to a market-oriented exchange rate was an easing of controls on trade and other current account transactions, as occurred in several very early steps.
In the State Council approved a system allowing exporters and their provincial and local government owners to retain a share of their foreign exchange earnings, referred to as foreign exchange quotas.
At the same time, the government introduced measures to allow retention of part of the foreign exchange earnings from non-trade sources, such as overseas remittances, port fees paid by foreign vessels, and tourism. As early as October , exporting firms that retained foreign exchange above their own import needs were allowed to sell the excess through the state agency responsible for the management of China's exchange controls and its foreign exchange reserves, the State Administration of Exchange Control.
Beginning in the mids, the government sanctioned foreign exchange markets, known as swap centers eventually in most large cities. The government also gradually allowed market force to take the dominant role by introducing an "internal settlement rate" of RMB 2. In November the Third Plenum of the Fourteenth CPC Central Committee approved a comprehensive reform strategy in which foreign exchange management reforms were highlighted as a key element for a market-oriented economy.
A floating exchange rate regime and convertibility for RMB were seen as the ultimate goal of the reform. Conditional convertibility under current account was achieved by allowing firms to surrender their foreign exchange earning from current account transactions and purchase foreign exchange as needed. During the era of the command economy , the value of the renminbi was set to unrealistic values in exchange with western currency and severe currency exchange rules were put in place.
With the opening of the mainland Chinese economy in , a dual-track currency system was instituted, with renminbi usable only domestically, and with foreigners forced to use foreign exchange certificates. The unrealistic levels at which exchange rates were pegged led to a strong black market in currency transactions.
In the late s and early s, China worked to make the RMB more convertible. Through the use of swap centres, the exchange rate was brought to realistic levels and the dual track currency system was abolished. As of , the renminbi is convertible on current accounts but not capital accounts.
The ultimate goal has been to make the RMB fully convertible. However, partly in response to the Asian financial crisis in , China has been concerned that the mainland Chinese financial system would not be able to handle the potential rapid cross-border movements of hot money , and as a result, as of , the currency trades within a narrow band specified by the Chinese central government.
Following the Internationalization of the renminbi , on 30 November , the IMF voted to designate the renminbi as one of several main world currencies, thus including it in the basket of special drawing rights.
These denominations have been available since , except for the 50 and yuan notes added in and 20 yuan notes added in or after Thus some denominations exist in both coins and banknotes. The denomination of each banknote is printed in Chinese. The numbers themselves are printed in financial Chinese numeral characters, as well as Arabic numerals.
The denomination and the words "People's Bank of China" are also printed in Mongolian , Tibetan , Uyghur and Zhuang on the back of each banknote, in addition to the boldface Hanyu Pinyin "Zhongguo Renmin Yinhang" without tones. The right front of the note has a tactile representation of the denomination in Chinese Braille starting from the fourth series. See corresponding section for detailed information. The fen and jiao denominations have become increasingly unnecessary as prices have increased.
In , aluminium 1-, 2-, and 5-fen coins began being struck for circulation, and were first introduced in These depict the national emblem on the obverse front and the name and denomination framed by wheat stocks on the reverse back. In , brass 1-, 2-, and 5-jiao and cupro-nickel 1-yuan coins were added, although the 1 and 2 jiao were only produced until , with the last 5 jiao and 1 yuan issued in All jiao coins depicted similar designs to the fen coins while the yuan depicted the Great Wall of China.
In , a new coinage was introduced, consisting of an aluminium 1 jiao, brass 5 jiao and nickel-clad-steel 1 yuan. These were smaller than the previous jiao and yuan coins and depicted flowers on the obverse and the national emblem on the reverse.
Issuance of the aluminum 1- and 2-fen coins ceased in , with that of the 5 fen halting in The small coins were still made for annual uncirculated mint sets in limited quantities, and from the beginning of the 1-fen coin got a new lease on life by being issued again every year since then up to present.
New designs of the 1 and 5 jiao and 1 yuan were again introduced in between and , with the 1 jiao being significantly reduced in size. In , the metallic composition of the 1 jiao was changed from aluminum to more durable nickel -plated steel. The frequency of usage of coins varies between different parts of China, with coins typically being more popular in urban areas, and small notes being more popular in rural areas.
Older fen and large jiao coins are uncommonly still seen in circulation but are still valid in exchange.
As of , there have been five series of renminbi banknotes issued by the People's Republic of China:. This note features Mao Zedong on the front and various animals on the back. This features a dragon on the obverse and the reverse features the China Millennium monument at the Center for Cultural and Scientific Fairs.
Mints are located in Nanjing , Shanghai, and Shenyang. Also, high grade paper for the banknotes is produced at two facilities in Baoding and Kunshan. The Baoding facility is the largest facility in the world dedicated to developing banknote material according to its website.
On 13 March , some delegates to an advisory body at the National People's Congress proposed to include Sun Yat-sen and Deng Xiaoping on the renminbi banknotes. However, the proposal was not adopted. For most of its early history, the RMB was pegged to the U. When China's economy gradually opened in the s, the RMB was devalued in order to improve the competitiveness of Chinese exports.
In the Chinese Central Bank again devalued their country's currency. However the peg was reinstituted unofficially when the financial crisis hit: But China 're-pegged' its currency to the dollar as the financial crisis intensified in July The RMB rose to its highest level in five years and markets worldwide surged on Monday, 21 June following China's announcement.
In his article, he narrated that "Weak trade data out of China, released over the weekend, weighed on the currencies of Australia and New Zealand on Monday. The RMB has now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies.
In July , the daily trading price of the U. Exchange will only proceed if the applicant appears in person at the relevant bank, and presents their passport or Chinese ID; these deals are being centrally registered.
This stringent management of the currency leads to a bottled-up demand for exchange in both directions. It is viewed as a major tool to keep the currency peg, preventing inflows of ' hot money '. A shift of Chinese reserves into the currencies of their other trading partners has caused these nations to shift more of their reserves into dollars, leading to no great change in the value of the renminbi against the dollar.
Renminbi futures are traded at the Chicago Mercantile Exchange. The futures are cash-settled at the exchange rate published by the People's Bank of China.
Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. One study suggests a It had not been this low since December Before , the Chinese renminbi had little to no exposure in the international markets because of strict government controls by the central Chinese government that prohibited almost all export of the currency, or use of it in international transactions.
Transactions between Chinese companies and a foreign entity were generally denominated in US dollars. With Chinese companies unable to hold US dollars and foreign companies unable to hold Chinese yuan, all transactions would go through the People's Bank of China. Once the sum was paid by the foreign party in dollars, the central bank would pass the settlement in renminbi to the Chinese company at the state-controlled exchange rate.
In June the Chinese officials announced a pilot scheme where business and trade transactions were allowed between limited businesses in Guangdong province and Shanghai , and only counterparties in Hong Kong , Macau , and select ASEAN nations.
Proving a success,  the program was further extended to 20 Chinese provinces and counterparties internationally in July , and in September it was announced that the remaining 11 Chinese provinces would be included. In steps intended to establish the renminbi as an international reserve currency , China has agreements with Russia , Vietnam , Sri Lanka , Thailand , and Japan , allowing trade with those countries to be settled directly in renminbi instead of requiring conversion to US dollars, with Australia and South Africa to follow soon.
Currency restrictions regarding renminbi denominated bank deposits and financial products were greatly liberalized in July To meet IMF requirements, China gave up some of its tight control over the currency. The two special administrative regions , Hong Kong and Macau , have their own respective currencies, according to the " one country, two systems " principle and the basic laws of the two territories. Banks in Macau can issue credit cards based on the renminbi, but not loans.
Renminbi-based credit cards cannot be used in Macau's casinos. The Republic of China, which governs Taiwan , believes wide usage of the renminbi would create an underground economy and undermine its sovereignty.
These renminbi must be converted to the New Taiwan dollar at trial exchange sites in Matsu and Kinmen. The renminbi circulates  in some of China's neighbors, such as Pakistan , Mongolia   and northern Thailand. Since , RMB-nominated bonds are issued outside mainland China; these are colloquially called " dim sum bonds ".More...