China, as the world’s second largest economy, has a monetary system that can be confusing to those who are not familiar with it.
The abbreviations CNH and CNY often cause doubt, but understanding them is key to carrying out financial transactions related to the Asian country.
This article explains the differences between both denominations and clarifies the context of the Renminbi (RMB) and the Yuan.
What is Renminbi and Yuan?
To begin with, it is important to differentiate between “Renminbi” (RMB) and “Yuan”. The Renminbi, which literally means “people’s currency”, is the official name of China’s currency. On the other hand, the Yuan is the basic unit of the Renminbi.
We see in the 6-month chart the behavior of the price of the Dollar against the Yuan. Source: Yahoo Finance
An example to understand it better: if we compare with the United Kingdom, the Renminbi is like saying “pound sterling”, while the Yuan is equivalent to the “penny” (basic unit).
It is common for Yuan to be used in everyday language to refer to the Chinese currency, especially in daily transactions.
CNH and CNY: Why two codes for the Yuan?
The difference between CNH and CNY lies in the context in which each denomination is used. Both refer to the Yuan, but in different markets:
In short, CNY is the currency used by people and businesses for transactions within mainland China.
This makes it a preferred option for international investors and companies seeking greater flexibility in transactions.
When to use CNH and when to use CNY?
Knowing which currency to use depends on the location and purpose of the transaction:
- Transactions within China: CNY is always used. For example, if a foreign company pays a Chinese supplier, the transaction will be in CNY.
- International operations with China: CNH is used for investments, bonds and other financial transactions outside mainland China. For example, if a company wants to negotiate contracts in Hong Kong, it will do so at CNH.
- Global trade: CNH is more common in international markets, as its price is determined by supply and demand in global financial markets.
Control and flexibility: the political and economic background
The use of CNY and CNH reflects China’s strategy to control its economy while facilitating international trade.
- CNY: The People’s Bank of China establishes a “central exchange rate” daily, allowing a limited fluctuation in its value, ensuring internal stability.
- CNH: Being less regulated, the CNH allows China to actively participate in international markets without compromising its domestic monetary policy.
This duality strengthens China’s position as a key player in the global economy, while protecting its financial system from external fluctuations.
Yuan FAQ
- Is the value of CNH and CNY the same? Not always. Although they are usually aligned, the value of the CNH may differ from the CNY due to its free fluctuation in international markets.
- Can CNH be exchanged for CNY? Yes, but this requires compliance with Chinese government regulations. Conversions must be made through authorized channels.
- Which is most used in foreign investments? The CNH is preferred, since its free listing provides greater flexibility to investors.
Conclusion
Understanding the differences between CNH and CNY is essential for any person or company doing business with China.
While the CNY operates within Chinese borders, the CNH operates in international markets with greater freedom. This dual system, although complex, reflects the balance that China seeks between internal control and its global integration.
In the end, both the CNH and the CNY are part of a single monetary system, whose central axis is the Renminbi, with the Yuan as its base unit. Understanding these terms not only facilitates financial transactions, but also offers insight into the complex economic system of the Asian giant.
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