Chinese Yuan General Info
The Chinese currency is actually called renminbi, but you will more frequently hear it called by the name of its primary unit, the yuan. The renminbi-yuan relationship is similar to that of Britain’s sterling-pound (sterling being the name of the currency and a pound being one unit of that currency). The ISO for renminbi, or the yuan, is CNY. An ISO of CHN denotes yuan traded in offshore markets, such as Hong Kong.
According to the Bank for International Settlements’ 2016 survey of the foreign exchange market, the yuan is now the world’s eighth most traded currency and has overtaken the Mexican peso to become the world’s most traded emerging market currency. However, disappointingly, 95% of all yuan trading remains against just one other currency, the US dollar.
The yuan reached its all-time low against the dollar in January 1994 when the exchange rate for USD/CNY reached 8.73. Its all-time high occurred in January 1981 when USD/CNY hit 1.53.
A high point for Chinese officials in recent years came when the yuan was added to the IMF’s Special Drawing Rights basket of currencies in October 2016 and, with its inclusion, joined the dollar, euro, yen and the pound as an official world reserve currency.
Importantly, China’s currency is not freely floating, which is to say that it is not determined wholly by market forces or purely by demand and supply. While market forces do play a part in China’s ‘managed float’ system, daily changes to the value of the yuan are restricted by the country’s central bank to moves of 2% above or below a midpoint, or reference rate, against the US dollar. This special rate is set each day by the central bank after consideration of the values of currencies from China’s main trading partners.
CNY - Market View
The Chinese yuan climbed to a 21-month high against the US dollar in early September amid the ongoing dollar bloodbath. USD/CNY’s fall to 6.447 took the yuan’s year-to-date gain against the dollar to 7.7%. So much for China’s currency manipulation.
The yuan’s climb against the dollar in 2017 will certainly appease Washington, and possibly makes the Trump administration look a little ridiculous. Trump refrained from labelling China a “currency manipulator” in April in order to win Beijing’s support against an increasingly provocative North Korea, but was frequently critical of China’s management of the yuan throughout his presidential campaign, suggesting several times that China had been intentionally undervaluing its currency to gain a trade advantage over the US.
The yuan’s outperformance in August relative to other Asian currencies led to suggestions that the yuan was being used as a safe haven. It was said that the Chinese government’s firm control over the yuan (via the daily USD/CNY ‘fix’) offered stability that was unavailable elsewhere.
Other market commentators suggested that the government was supporting the yuan ahead of October’s National Congress. The Communist Party’s congress, at which changes to top leadership positions are made, is the most important political event in China and is held once every five years.
By September 7th, against the euro (EUR/CNY 7.785) and Australian dollar (AUD/CNY 5.223), the yuan’s year-to-date losses stood at 6.2% and 4.5% respectively, putting it roughly in line with other Asian currencies.