Chinese currency continues to gain prominence on the global stage, so it’s important that its nuances are understood by cross-border commerce organizations. While the abbreviations “CNY” and “RMB” are often used interchangeably, there are some distinctions that you need to keep in mind.
A Brief History of the Renminbi
The People’s Republic of China was established in 1949, and with it the Chinese renminbi. It’s pinyin of the Chinese 人民币, meaning “the people’s currency,” with an internationally recognized abbreviation of RMB. Despite China traditionally having a very tight monetary policy, recent policy changes have allowed the renminbi to move steadily up the currency ladder. It’s quickly becoming one of the most commonly used global currencies.
So Where Does CNY Come In?
Much of the confusion surrounding RMB and CNY is that many people simply aren’t familiar with the term “renminbi.” You’re more likely to encounter the term “yuan,” or Chinese yuan, internationally shortened to CNY and designated by the Chinese symbol ¥. This is because while the currency is known as renminbi, individual units are known as yuan. This is similar to how US dollar is the name of the currency, but the cent is a unit of account within that currency. There are further intricacies of Chinese currency, however, that may frustrate your cross-border deals.
Every Yuan Is Not Created Equal
There are two kinds of Chinese yuan: offshore and onshore. Offshore yuan, or CNH (denoting its connection to China’s international-finance center Hong Kong), can be traded freely on the FX market. The trade of onshore yuan (CNY), on the other hand, is tightly controlled by the People’s Bank of China, which can result in the buy, sell and mid-market rates diverging significantly from the CNH rate.
This disparity is especially significant for larger enterprise deals, since these transactions can easily reach six figures, but it’s an important distinction for any cross-border business. If you’re making RMB settlements to Chinese supplier through a foreign bank, you’ll always convert at the CNH rate. Here at Wyre, on the other hand, we perform RMB settlements at the CNY rate. This can work for or against you, depending on the direction of divergence. And if you’re doing your own research on why a supplier has increased prices on your order, it’s important to make sure you’re looking at the correct exchange rate! Finally, while hedging products are available if you’re engaging in RMB-settled contracts, you’ll need to pay attention to the index used.
👉 Check out the Wyre blog to learn more about scaling your international business and money transfer solutions to China 🇨🇳, Korea 🇰🇷, Brazil 🇧🇷, USA 🇺🇸 and Mexico 🇲🇽.
Till next time,
Lauren Treadwell
Wyre Sr. Staff Writer
