Renminbi

The renminbi is the official currency of the People’s Republic of China. The name translates roughly to “people’s currency.” The unit in which prices are stated is called the yuan. A coffee in Beijing, for example, costs 25 yuan, and the money behind that is the renminbi. In international payments, the currency carries the code CNY. Unlike the euro or the US dollar, the renminbi cannot find its value entirely freely on the market: the Chinese central bank sets a reference rate every morning and allows only small deviations from it.

Why a currency is world politics

China is the world’s second-largest economy and the largest exporter of all. Almost everything that comes from there is at some point settled in renminbi or produced in renminbi. The exchange rate therefore also determines how expensive electronics, batteries, or machine parts are for the rest of the world. If the renminbi falls, Chinese goods become cheaper abroad. This pleases exporters in China and annoys competing manufacturers in Europe and the United States.

At the same time, the renminbi is a political flashpoint. The United States has repeatedly accused China of artificially keeping the rate low in order to gain trade advantages. Whether this accusation is true is disputed among experts. What is clear, however, is that because the state can influence the rate, every movement is also a political signal. When Beijing significantly lowers the reference rate, markets read this as a reaction to tariffs or to a weakening economy.

A third point concerns the long-term question of power. To this day, the US dollar remains the currency in which states hold their reserves and in which oil is traded. China is working to establish the renminbi as an alternative. So far with limited success: the renminbi’s share of global currency reserves stands at only a few percent.

How Beijing steers the exchange rate

Every trading day, the Chinese central bank publishes a midpoint rate against the US dollar. Around this value, the exchange rate is allowed to fluctuate domestically only by a fixed percentage, currently two percent up or down. If the rate leaves this corridor, the central bank intervenes. It then buys or sells foreign currency until the rate is back within the desired range. Experts call such a system “managed floating” — it lies between a fixed and a completely free exchange rate.

On top of this comes a peculiarity that confuses many: the renminbi exists in two variants. Within China, it is traded as CNY, strictly controlled. Outside China, especially in Hong Kong, there is the so-called offshore renminbi with the code CNH. This one can fluctuate more freely. Both rates are usually close to each other, but analysts view the gap between them as a sentiment gauge: if the offshore rate is noticeably weaker, foreign investors expect a devaluation.

A common misconception is that renminbi and yuan are two different currencies. The relationship is more like that between pound sterling and pound: renminbi is the name of the money, yuan is the unit of account. Both terms refer to the same thing and are often used interchangeably in the news.

The renminbi in the news and in wallets

The term appears most often in economic news reports. Sentences like “the yuan fell to a seven-month low” show up almost weekly. This almost always refers to the exchange rate against the US dollar. The renminbi also appears in the quarterly figures of large corporations: companies that sell a lot in China earn renminbi there and must convert these sums into euros. If the exchange rate falls, revenue shrinks on the balance sheet even though just as much was sold in China.

In everyday life, one encounters the renminbi mainly when paying in China itself. Cash plays hardly any role there anymore; payments are made via QR code through apps like WeChat Pay or Alipay. China has also been testing a digital renminbi, the e-CNY, for years. This is official central bank money in digital form, not a cryptocurrency. Among other things, it is meant to make payment transactions traceable by the state.

And the term crops up wherever technology and geopolitics meet. When China settles raw materials for batteries in renminbi instead of dollars, or concludes trade agreements without the dollar, it makes the news. Behind this always lies the same question: how much weight will China’s currency gain in the global financial system?