If you didn’t know that there were two types of renminbi, the Chinese currency, you’re not alone.
Because we work in the world of finance, and help businesses make payments to China every day, we’re happy to help explain some of the basics of Chinese Renminbi (aka RMB, Chinese Yuan, CNY, CNH)!
In this guide:
- Basics of the renminbi (RMB)
- Why are there two types of RMB?
- Difference between CNY and CNH
- What this means to businesses who want to send money to China
The Basics of Renminbi (RMB): The Chinese National Currency
The name of the Chinese currency is the renminbi, typically written as RMB. Each unit is called a yuan (¥).
In the foreign exchange market, however, there are two types of Renminbi: onshore and offshore:
- CNY (onshore – RMB traded within Mainland China)
- CNH (offshore – RMB traded outside of Mainland China)
CNY and CNH are both types of RMB (1 CNY = 1 RMB = 1 yuan and 1 CNH = 1 RMB = 1 yuan). They however don’t necessarily trade at the same price against other foreign currencies.
Why are there two types of RMB?
Though the economy of Mainland China is now the 2nd largest economy in the world, it still retains a typical feature of an emerging market: very strong capital controls. In the past RMB was not available to be traded outside of China.
As an interim step in internationalising its currency, Mainland China created an offshore version of the RMB, dubbed CNH (the “H” stands for Hong Kong, which is where the deepest market for trading CNH is – although it is also traded in other international foreign exchange marketplaces like London and Singapore).
What’s the difference between CNY and CNH?
In general, CNY is the currency used in China, and CNH is the offshore currency.
The first step is to understand that when one talks about a currency in the context of cross-border trade, it’s always with respect to another currency (i.e. the price of that currency vs a foreign one – aka the exchange rate).
There are 2 main differences between CNY and CNH:
- The exchange rate of CNH vs other currencies is determined by the free market. So at times there can be discrepancies between the exchange rates of CNH and CNY vs. for example, the USD
- CNH can be freely traded against other currencies in the international markets, without the interference of China’s capital controls
Essentially, CNH and CNY are worth different amounts in relation to USD – they both have their own buy, sell and mid-market rate.
The value of CNY is controlled tightly by the Chinese government. The central bank, the People’s Bank of China, publishes a reference rate for the currency each day. On the other hand, CNH is traded freely in global markets, and its value changes based on the market. This gives rise to arbitrage opportunities where foreign branches of Chinese banks are notoriously active at taking advantage of pricing differentials.
In the “physical” world however, you withdraw RMB. For example, when you withdraw Chinese currency at an ATM in Mainland China (or now, in Hong Kong where RMB is now legal tender), you get RMB. So irrespective of the different exchange rates in the market vs other currencies, the “exchange rate” between CNH and CNY is always 1 to 1.
What this means for businesses who want to send money to China
There are two exchange rates for the RMB – so how does that affect the way you send money to China?
It depends which exchange rate is most favourable at the time of your remittance.
The good news is that if you use a reliable service provider, you don’t have to worry about specifying CNY or CNH when you send money to China. To send funds to China, most businesses use a third party service (for example, a bank or a remittance company) who will execute the conversion at the best available exchange rate for you.