Technical Terms

The official currency that forms the backbone of the monetary system in People’s Republic of China is renminbi with its base unit yuan. It is considered to be among the most important currencies being the national currency of one of the most rapidly developing nations of the world. Renminbi means "the people’s money" in the native language of China. Yuan, is general terms, is used for the base unit of any currency as in Chinese language, it means "a round object". "Jiao" and "fen" serve as the subdivisions to the currency unit. The symbol for Yuan in simplified Chinese language is "元" but the latinized symbol is the same symbol that is used for Japanese yen i.e. "¥". In some parts of China, yuan is known as "kuai" and jiao is known as "mao".

The ISO 4217 currency code and numeric code for the official currency in China is CHY and 156 respectively. Often, RMB is also used as a common abbreviation for renminbi. Renminbi was adopted as a national currency of China in 1949 when nationalists took control over the country.

Overview

Chinese economy is emerging out as a new superpower nation of the world supported by its economic growth and advancement. The country has been able to rise from various situations like differences between People’s Republic of China (PRC) and Republic of China (ROC) and more that played the role of hindrances to the nation’s prosperity and the currency has stood strong all the while since its inception as the official one. Earlier, the Chinese renminbi was unofficially pegged to the United States dollar under a fixed rate regime. This move proved fruitful in the context of currency’s strength but more recently it has to change its basis to floating rate regime with some resistance under the pressure of the USA and other European and G7 countries. The argument from china was that if it conducts a revaluation of its currency that would be leading to an increase in the value of the currency, the exports from the country would become less competitive and that would result in unemployment and the would pose a threat of currency risks to the domestic banks. Now the currency is pegged to a basket of foreign currencies consisting of

• United States dollar

• Euro
• Japanese yen
• South Korean won
• Great Britain pound
• Thai baht
• Russian ruble
• Australian dollar
• Canadian dollar
• Singapore dollar

In context of the purchase power parity, 1.8 yuan of Chinese currency are equal 1 US dollar.

The concept of currency developed in the ancient China as early as around 3000 to 4500 years ago when shells were used as the currency according to the instances found. Since then, the control of China came into the hands of various generations of successive rulers that along with other changes, also helped in developing the currency system making it more advanced. The material that was used for minting the coins changed from shells to bronze and then to copper and silver in the imperial China. Several attempts were also made by the rulers of different dynasties to adopt the use of paper currency at that time and were quite successful also. That is why, it is said the historical event of the origination of the paper currency took place in China, the first paper money considered to be issued between 7th to 15th centuries AD.

  In the 19th century, the foreign currencies prominently Mexican peso began to be circulated in the country as it consisted of silver coins. But in 1889, yuan was introduced as the national currency unit at par with the Mexican peso. At that time, the yuan had "wen" as its subunit with 1 yuan = 1000 wen. Yuan stayed as the official currency till 1949, when the communists took control over the country introducing a new national currency named renminbi for the purpose of controlling hyperinflation. The currency exchange rate in relation to foreign currencies was set at unrealistic standards initially. In the 1980s, a dual track price system was adopted with the opening up the Chinese economy but the system got several flaws that led to the discontinuation of the system. Renminbi was pegged informally to United States dollar at a fixed rate that prevented the Chinese currency from the competitive devaluations of the Asian currencies during the financial crisis at that time. This policy was also taken off from execution under the pressure of United States and other countries. Now the currency is pegged to a basket of foreign currencies and not strictly the dollar.

  Till date, five series of the renminbi bank notes have been issued since the currency was introduced. The first series of banknotes was issued before even the people’s republic of China was found to replace the national currency. The denominations of notes issued were 12 in number and ranging from 1 yuan to 50000 yuan. The second series was issued in 1955 when renminbi was revalued shifting the decimal 4 places to the right making the 10000 yuan note equivalent to 1 yuan note of the second series. In 1964, the third series of banknotes was issued and for the next 20 years, the second and third series were used simultaneously. The fourth series was issued in 1987 and 1992 and are still legal tender in the country. The first edition of the fifth series was issued in 1999 and the second edition in 2005 introducing new and technologically improved security characteristics.

The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

• Flow of imports and exports between the countries
• Flow of capital between the countries
• Relative inflation rates
• Fluctuation limits on exchange rate imposed by the governments of the countries
• Merchandise trade balance
• Rate of inflation in the country
• Flow of funds between the countries for the payment of stock and bond purchases
• Relative growth
• Short term and long term interest rate differentials
• Cost of borrowings