Illustration of a coin from a treasure hidden at Xiangyang during the siege in 1268-73.
China’s currency, the renminbi, is getting stronger with the Chinese economy. It is gaining worldwide attention because it has appreciated greatly due to China’s significant trade surplus, foreign reserves, and other factors. Whether the value of the renminbi will continue to grow or fluctuate are questions catching Chinese and others’ ears.
The renminbi is the monetary currency of the People’s Republic of China, with RMB or CNY (China yuan) as its abbreviation and ¥ or ? as its symbol.
Since the founding in 1948 of Renmin Bank of China (the central bank of China), which is in charge of issuing, printing, and managing renminbi, five editions of renminbi have been issued: 1948, 1955, 1962, 1987, and 1999, with the fifth edition and part of the fourth edition still in circulation. Each edition has a theme, such as agricultural and industrial development for edition three and harmonious development involving economy, culture, and environment for edition five. Denominations of renminbi are 1, 2, and 5 cents, 10, 20, and 50 cents, and 1, 2, 5, 10, 20, 50, and 100 yuan (1, 2, 5, 10, and 50 cents and 1 yuan are coins, and other denominations are paper).
The renminbi has experienced several exchange rate fluctuations in the past half century. From 1949 to 1952, when the renminbi was first issued as China’s legal currency, a floating exchange rate was used. From 1953 to 1973 the renminbi was officially tied to the U.S. dollar at $1: ¥2.46. At the same time China operated a planned (government regulated, as opposed to a market) economy, so the exchange rate did not make much difference because little foreign trade went on between China and other countries. In 1973 the first oil crisis broke out, together with worldwide inflation and fluctuations in exchange rates. Most Western countries adopted a floating exchange rate. China at this time started to connect the renminbi to a basket of currencies rather than just the U.S. dollar to avoid instability caused by fluctuations in the dollar’s exchange rate. The exchange rate between the U.S. dollar and the renminbi was gradually adjusted to $1: ¥1.50, which was 39.2 percent appreciation for renminbi until 1980.
From 1980 to 1994, when China started its open-door policies and China’s economy and foreign trade grew rapidly, a dual exchange rate was adopted: the official exchange rate and the domestic balance price (an exchange rate calculated according to the balance of foreign trade by Chinese companies). During this period the official exchange rate between the U.S. dollar and renminbi fluctuated between $1:¥1.50 and $1:¥5.70, and the domestic balance price fluctuated over a wider range: from $1:¥1.50 to $1:¥8.70 because of rapidly growing foreign trade. From 1994 to 2005 the renminbi was again connected more directly to the U.S. dollar (although not officially), and the exchange rate between the two was allowed to fluctuate only within a narrow range of $1:¥8.27 to $1:¥8.28, with strict regulation.
On 21 July 2005, The People’s Bank of China announced that the renminbi, for the second time, was to be connected to a basket of currencies rather than directly to the U.S. dollar, and the exchange rate was changed to $1:¥8.11, a 2 percent appreciation for the renminbi. The daily fluctuating range of the renminbi was doubled from 0.15 percent to 0.3 percent and rose to 0.5 percent on 18 May 2007. From this time the renminbi has continued to appreciate (as of 31 July 2008, the exchange rate between the U.S. dollar and the renminbi was $1:¥6.8205).
The appreciation of the renminbi is a two-edged sword. On one hand, this gradual and steady appreciation can make the formerly overvalued renminbi go back to its real value, which would effectively avoid sharp fluctuations in exchange rates and variations in the national economy. Meanwhile, China’s foreign surplus will decrease, and its consuming power will be greatly increased. In this respect China’s production will be strongly stimulated. On the other hand, with a higher “international price,” many of China’s exporters are losing their competitive edge because they are increasingly unable to offer low prices, the basis of their competitiveness. In addition, uncertain factors, such as unemployment, domestic inflation, and currency speculation, are emerging.
Managing a currency is key to establishing a stable economy, but such management remains a challenge for China and the rest of the world, since all currencies in today’s global market are interconnected.
Li Zhigang. (2008). Tou xi renminbi—Renminbi hui lv bian hua de zheng zhi fen xi [A perspective of renminbi—The political analysis of exchange rate system of renminbi]. Beijing: China Economy Publisher.
Renminbi Research Institute. (2002). 1949—2000 Nian renminbi hui lv yan bian li shi [The history of the exchange rate of renminbi from 1949 to 2000]. Shanghai: Shanghai Finance and Economy University.
Source: Zhou, Guanqi. (2009). Currency. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 547–549. Great Barrington, MA: Berkshire Publishing.
Back and front of a 20-yuan note from the People’s Republic of China, 1999. The remnimbi (yuan) continues to be the object of worldwide attention due to China’s significant trade surplus, foreign reserves, and other factors in a shaky global economy. COURTESY OF PAUL AND BERNICE NOLL.
A copper plate for printing paper money, from the Southern Sung dynasty capital of Hangchou, and dating from between 1127 and 1279. To the right is a print made from the plate as a modern example.
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