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Renminbi, RMB (CNY)

The official currency of China

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A bull in the making

  • Nov 17, 2010
Rating:
+4
The RMB is China's official currency. RMB stands for Renminbi (人民币) aka people's currency. Yuan is the unit (not $) and is denominated as ¥ somewhat similar to the Japanese yen. Yet, RMB is still not a free floating currency which translates to a fixed price level that the Chinese Government is controlling the magnitude of the band in which it may rise or fall. Naturally, the U.S. government has been blaming the Chinese government for controlling that movement. Yet, despite all the accusations, most of us know that the level of RMB is not the antidote to U.S. problem. RMB is probably undervalued as many have claimed. It is rising slowly but not as fast as we all wish. Whatever the reason/s, the RMB is not expected to escalate in its value until the day it's floated in the foreign exchange market.

For the present, the RMB is now pegged to a basket of foreign currencies (US$, Euro, Yen, Won, British Pounds, Russian Ruble, AUD, CND, SGD & Thai Baht) . It is now on a managed floating exchange rate. The fluctuation is based on total aggregate demand and supply of these currencies. It is trending upward against the US$ but downwards against the AUD and SGD. So, it all depends on what currencies you are comparing it against. Generally though, RMB is trending upwards and expected to do so even more in the future. It is not always been the case though. RMB was once pegged to the US$ at 2.46 yuan before the 80s. It then declined to 8.62 yuan in 1994 and for the most of 1997 to 2005, RMB was pegged to the USD at 8.27 per US$. In the last 30 days, RMB has fluctuated between 6.61 yuan to 6.68 yuan per US$.

[Trivia: I remembered a time after China opened its doors to foreigners in 1978 when RMB was "worthless" as far as foreigners are concerned. Foreigners had to use foreign exchange certificates instead of RMB to make purchases. Locals would clamor for these exchange certificates which will allow them to buy some goods which they have no access to. There was the dual system where Chinese paid a lower price to enter places like Forbidden City while foreigners will need to pay more. Today, this system has been abolished. Thank God for that! The same applies to HK$ once. Now, no Chinese would exchange RMB for HK$ on par since HK$ has depreciated due to the lower US$.]



The Chinese government claims that it is not ready to freely float the RMB until its banking system and capital market are more mature. I find that a reasonable claim. There are still a lot the Chinese have to learn. If you've been to the bank in China, you know how long it is to get a transaction done. Very different from its neighbor, Hong Kong. I'm however hopeful they'll be ready soon. Hence, it is not easy to foretell that the RMB is going to appreciate in the future. 

The question is not really if it's appreciating but rather, how to invest in this currency! As much as the movement of the currency is being controlled (one cannot freely transmit money over and have it changed to RMB as much as one hopes to; there are regulations for that) and as much as the stock market is being regulated (foreigners cannot freely set up an account to buy or sell stocks in China, one needs to go through Hong Kong Exchange instead and in which case, it's denominated in HK$), some chose to invest in properties instead. However, even for that, you'd need to come up with a large down payment, if not the full amount. Hence, there's a lot of hassle where uninformed investors are concerned. China is a market that if you're uninformed, you are exposing yourself to a lot of undefined risks.
A bull in the making A bull in the making

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January 03, 2011
nice work with the review and the photos....you have a knack in finding the best ones!
 
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Quick Tip by . November 12, 2010
posted in Business Matters
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Despite that it's not a floating currency (yet), it is one of the best performing currencies in the world. Having said that, watch for the ascent of RMB when it is eventually being floated in the world. That's when you see a repeat of the Singapore Dollar (S$), only that the magnitude and the speed of increase will be a lot more phenomenal in the next decade. It is viewed by most western investors to be a currency that's undervalued.
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Wiki

The Renminbi (RMB) (sign¥codeCNY) is the official currency of the People's Republic of China (PRC), whose principal unit is the Yuan. The currency is legal tender in mainland China, but not in Hong Kong and Macau.

Renminbi (simplified Chinese人民币traditional Chinese人民幣pinyinrénmínbì; literally "people's currency"). The renminbi is issued by the People's Bank of China, the monetary authority of the PRC.[4] At the moment it is mainly a domestic currency as it is not a free floating currency however given the size of the Chinese economy and its rapid growth, it is touted to become one of the major media of exchange.

yuán (元) is also known colloquially as a kuài (块 - "lump", originally of silver). One yuán is divided into 10jiǎo (角) or colloquially máo (毛 - "feather"). One jiǎo is divided into 10 fēn (分). In Cantonese, widely spoken in GuangdongHong Kong and Macaukuàijiǎo, and fēn are called mān (蚊), hòuh (毫), and sīn (仙), respectively. Sīn is a word borrowed into Cantonese from the English cent.

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