Renminbi

• 1. Introduction

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  The renminbi, whose name translates literally as "People's Currency", was introduced by the People's Bank of China in December 1948, roughly a year before the People's Republic of China itself formally existed. It arrived not as a symbol of triumph but as a practical tool, replacing a patchwork of currencies circulating in Communist-controlled territories, and tasked with ending the devastating hyperinflation that had ravaged China in the final years of Kuomintang rule. Today it ranks as the world's fifth-most-traded currency, carries a weighting in the International Monetary Fund's reserve basket, and circulates not just across China but in parts of Pakistan, Mongolia, Cambodia, and Indonesia. How did a currency born in wartime scarcity become a fixture of global finance? And why, despite its growing reach, does the renminbi still hold only about 2% of global foreign exchange reserves while the US dollar commands above 60%? Those questions sit at the heart of this story.

• 2. A Currency Born in Chaos

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  The first series of renminbi banknotes was issued on the 1st of December 1948 by the newly founded People's Bank of China, initially in denominations ranging from ¥1 to ¥1,000. Notes for ¥200, ¥500, ¥5,000, and ¥10,000 followed in 1949, and by 1950 ¥50,000 notes had been added. A total of 62 different designs were produced in that inaugural run. The Chinese characters on those first notes were written by Dong Biwu, a founding member of the Chinese Communist Party.

  The immediate priority was not aesthetics but economic survival. Hyperinflation had eaten through savings and shattered trust in money itself. The new government moved to consolidate, and by 1955 it revalued the currency at a rate of 1 new yuan for every 10,000 old yuan, effectively erasing the inflationary overhang and resetting the monetary baseline.

  The second series, introduced on the 1st of March 1955 though dated 1953, broke new ground by printing denominations in Uyghur, Tibetan, and Mongolian on the reverse. Zhuang was absent because the Zhuang alphabet had not yet been invented. From the third series onward all four minority languages appeared, a practice maintained to the present day. Professors at the Central Academy of Art, including Luo Gongliu and Zhou Lingzhao, designed the second through fourth series, giving the notes their characteristic imagery of workers, ethnic minority representatives, and landmarks.

• 3. The Long Road to Convertibility

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  From 1949 through the late 1970s, China fixed its exchange rate at a deliberately overvalued level. The logic was straightforward: by keeping the renminbi strong on paper, the government could import the machinery and equipment that priority industries needed at a lower domestic cost. The renminbi was not intended for foreigners. It was a planning instrument.

  The opening of China in the 1980s forced a rethink. To make Chinese exports competitive, the government devalued progressively, pushing the official rate from ¥1.50 per US dollar in 1980 to ¥8.62 by 1994, the weakest the currency has ever been on record. Between 1980 and 1994, foreign visitors to China conducted transactions using a parallel instrument called foreign exchange certificates, issued by the Bank of China. These FECs were officially at par with the renminbi, but because ordinary Chinese citizens could not obtain them or use them to buy imported goods at Friendship Stores, an illegal black market formed. Touts outside hotels were known to offer more than ¥1.30 in regular renminbi for every ¥1 FEC, reflecting the real demand the official rate obscured.

  In 1979, the State Council had approved a system letting exporters retain a share of their foreign exchange earnings, a small but meaningful crack in the command-economy shell. By October 1980, firms with surplus foreign exchange could sell it through the State Administration of Exchange Control. Government-sanctioned swap centres spread to most large cities from the mid-1980s onward. This gradual liberalisation eventually brought the exchange rate to above ¥8 per dollar in 1994, at which point the dual-currency FEC system was discontinued. The renminbi held that level against the dollar until 2005.

• 4. The Peg and Its Pressures

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  On the 21st of July 2005, after holding the peg at roughly ¥8.27 per US dollar since 1997, China lifted it. The immediate revaluation landed at ¥8.11 per dollar, with the euro rate standing at ¥10.07060. It was a signal of confidence, and the renminbi was allowed to float within a narrow daily band of 0.3% around a central parity set by the People's Bank of China. That band was widened to 0.5% in May 2007, to 1.0% in April 2012, and to 2% in March 2014.

  The 2008 global financial crisis interrupted the experiment. Under what analysts described as intense pressure from Washington, China had allowed the currency to strengthen for about three years starting in July 2005. But as the crisis deepened in July 2008, the peg was quietly reinstated. It remained effectively fixed until June 2010, when the People's Bank of China announced a return to exchange rate flexibility in a simultaneous Chinese and English statement, earning praise from world leaders including Barack Obama, Nicolas Sarkozy, and Stephen Harper.

  In August 2015 the People's Bank of China cut the renminbi's daily fix by 1.9%, setting it at ¥6.2298 per dollar. Currency strategists at the time, including Simon Derrick of BNY Mellon and Marc Chandler of Brown Brothers Harriman, said China had effectively re-pegged the yuan again. In January 2014 the renminbi had briefly touched its record high of ¥6.0395 per dollar. The IMF, which had estimated a 23% undervaluation in 2011, assessed by 2015 that the currency was no longer undervalued. By 2026 the IMF had revised that view, stating the renminbi was undervalued by 16%.

• 5. Going Global

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  Before 2009, Chinese companies and foreign counterparties conducting trade had to route nearly all transactions through the People's Bank of China. The Chinese firm could not hold US dollars; the foreign firm could not hold yuan. Every deal passed through the central bank at a state-controlled rate. That began to change in June 2009, when officials announced a pilot allowing selected businesses in Guangdong province and Shanghai to settle transactions directly in renminbi with counterparties in Hong Kong, Macau, and a handful of ASEAN nations.

  Proving successful, the program expanded to 20 Chinese provinces and international counterparties in July 2010, and by September 2011 the remaining 11 provinces were included. China also signed bilateral trade settlement agreements with Russia, Vietnam, Sri Lanka, Thailand, and Japan, removing the requirement to convert to US dollars for transactions with those countries. By September 2023, the renminbi had passed the euro to become the second most-used currency in international trade, having tripled its share over the preceding three years.

  Offshore renminbi markets developed their own identity. Renminbi traded outside mainland China uses the designation CNH rather than CNY, with the offshore rate determined by market forces rather than the daily fix. Since 2007, renminbi-denominated bonds issued outside the mainland have been nicknamed dim sum bonds. In April 2011, the Chinese property investment trust Hui Xian REIT raised ¥10.48 billion in Hong Kong's first initial public offering denominated in renminbi. The milestone on the road to reserve status came on the 1st of October 2016, when the renminbi became the first emerging market currency to enter the IMF's special drawing rights basket, with an initial weighting of 10.9%.

• 6. The Digital Yuan

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  In October 2019, the People's Bank of China announced that a digital renminbi, also called DCEP for Digital Currency Electronic Payment, was ready to be released after years of preparation. Pilot programs began in 2020 in cities including Shenzhen, Suzhou, and Chengdu. By 2023, the e-CNY had spread into public transportation, government subsidies, retail payments, and cross-border trials.

  The groundwork had been laid through an extensive patent filing campaign. The Financial Times reviewed and verified 84 patents, which revealed plans for interbank settlement systems, digital currency wallets linked to retail bank accounts, and algorithms to adjust currency supply based on triggers such as loan interest rates. Some patents pointed to digital chip cards consumers could carry. The majority of those patents are attributed to the PBOC's Digital Currency Research Institute, with some assigned to state-owned corporations or subsidiaries of the central government.

  The project drew sharply different readings internationally. The Chamber of Digital Commerce, an American non-profit, flagged the patents as evidence of Beijing's escalating efforts to digitise the renminbi. Victor Shih, a professor at the University of California San Diego, argued that a digital currency does not solve the fundamental problem that offshore renminbi holders often prefer to exchange into dollars, which remain a safer asset in their view. Eswar Prasad, an economics professor at Cornell University, said the digital renminbi would "hardly put a dent in the dollar's status as the dominant global reserve currency", citing the United States' deep capital markets and institutional framework. Maximilian Karnfelt of the Mercator Institute for China Studies pointed to capital controls and limited market access for foreigners as the real barriers to wider global use. Those capital controls, he noted, China has no current plans to remove.