Chinese Studies The Renminbi
by
Menzie D. Chinn, Yin-Wong Cheung
  • LAST MODIFIED: 23 August 2017
  • DOI: 10.1093/obo/9780199920082-0145

Introduction

The official currency of the People’s Republic of China is the renminbi (RMB), and its basic unit is the yuan. The literal meaning of RMB in Chinese is “People’s currency.” The People’s Bank of China introduced the currency when it was established on 1 December 1948. That is, the official currency existed before the official establishment of the People’s Republic of China on 1 October 1949. Since then, China has maintained a tight grip on its currency, even after initiating the process of reform that accelerated through the 1980s. Consequently, before the 1990s, the global markets paid little heed to the RMB, as the currency was quite isolated from the international economy. Since then, however, that condition has been drastically altered, as the world has witnessed China’s blistering growth, ballooning trade surplus, and surging foreign exchange reserve accumulation. From that point forward, China’s foreign exchange policy has been intensely scrutinized. The debate over the RMB has gradually expanded from concerns regarding its valuation and the implications for global imbalances to its influence on other currencies. Alongside its continuous push to integrate its economy into the global market, China stepped up efforts to reform its exchange rate policy in the 2010s. Specifically, China has deliberately adopted various measures to promote the use of the RMB overseas. Some of these measures include the cross-border trade settlement in the RMB, bilateral local currency swap arrangements, the establishment of offshore RMB centers and RMB clearing banks, and new venues for cross-border capital flows. The global role of the RMB was further underscored by the International Monetary Fund (IMF) in November 2015 when its executive board decided to include the RMB in its Special Drawing Rights (SDR) currency basket, effective October 2016. The world’s attention has now shifted to the question of when the RMB’s global status will match its economic might, as well as the implications of a globalized RMB for the existing international financial and economic order.

General Overview

China’s policies surrounding the RMB have always served goals that transcend solely economic concerns; they are consistently guided by political—as well as economic—considerations. The main function of RMB policy before the 1979 reform initiative was to support the central economic plan. After 1979, as the role of central planning was diminished, economic forces were permitted to have greater weight in the mechanism for exchange rate determination. The currently stated policy goal is to achieve RMB flexibility and convertibility in a manner that promotes allocative efficiency while further supporting economic growth. An early history of China’s currency and financial systems is illustrated in Miyashita 1966. Shi 1998 and Wu and Chen 2002 benefit from their authors’ practical experiences and offer informative accounts of the evolution of China’s exchange rate policy—the latter compared with the former provides a more in-depth analytical discussion of the related societal and political environments. Liew and Wu 2007 dissects the evolution of China’s exchange rate policy until the WTO accession, with an emphasis on the roles of politics and economics in policy making. Cheng 2014 offers an updated account with discussions on the recent policy of RMB internationalization.

  • Cheng Siwei 成思危. Renminbi guojihua zhi lu (人民币国际化之路). Beijing: Zhongxin Chubanshe, 2014.

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    Cheng, with references to the experiences of Japan, Chile, Poland, and Singapore and the evolution of China’s exchange rate policy, offers his views on capital account liberalization and the internationalization of the RMB.

  • Liew, Leong H., and Harry X. Wu. The Making of China’s Exchange Rate Policy. Cheltenham, UK: Edward Elgar, 2007.

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    Liew and Wu highlight the importance of the interplay between economics and politics in understanding RMB policymaking. They provide a good insight into the institutional context and relevant Chinese references of the RMB policy formation process.

  • Miyashita, Tadeo. The Currency and Financial System of Mainland China. Seattle: University of Washington Press, 1966.

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    Miyashita provides one of the few accounts written by non-Chinese on Communist China’s currency system and financial institutions from the 1930s to early 1960s.

  • Shi Lei 石雷. Renminbi shi hua (人民币史话). Beijing: Zhongguo Jinrong Chubanshe, 1998.

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    Shi was a member of the preparation committee of the People’s Bank of China and subsequently held various official positions there. His book offers a historical account of the issuance of the RMB and the surrounding political and economic issues.

  • Wu Nianlu 吳念鲁 and Chen Quangeng 陈全庚. Renminbi huilü yanjiu—xiudingben (人民币汇率研 究 - 修订本). Beijing: Zhongguo Jinrong Chubanshe, 2002.

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    From both policy and theoretical perspectives, Wu and Chen provide a detailed account of China’s exchange rate policy from the founding of modern China to the managed floating arrangement adopted after the unification of the official and swap center rate in 1994.

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