The Australia China free trade agreement opens up a world of possibilities for Australian business, but in bringing those opportunities for business it also means that there will be a need for Australians to start to buy and sell the Chinese currency, the renminbi, to convert their invoices to Aussie dollars.
But because of its history as a closed and managed exchange rate with limited trading there is some confusion as to how to describe the Chinese unit of account.
The best and most succinct summary came from ECRI research in 2011.
China’s currency is officially called the renminbi. The yuan is the unit of account. The renminbi, denoted RMB, is thus the name for the currency traded onshore and offshore. There exists a separation between these two markets, as China institutes capital controls that prevent the currency from flowing abroad and vice versa.
If the RMB is traded onshore (in mainland China), it is referred to as CNY, whereas if the RMB is traded offshore (mainly in Hong Kong) it trades at the rate of USD/CNH, deliverable RMB located in Hong Kong. Thus, while the RMB is just one currency, it trades at two different exchange rates, depending on where it is traded.
That was 2011 and the world has changed a little since and a number of other centres, besides Hong Kong, have been designated as renminbi trading hubs. That means that while the renminbi remains the currency professional markets will refer to it as the CNH and in terms of an exchange rate it is traded – for example against the Aussie dollar as the AUD/CNH exchange rate.
My guess is that this might change in the longer run so that RMB, like JPY, GBP, EUR and AUD, amongst other designations, refer more closely to the name of the currency as it’s known at home. For the moment though its CNH.
Business Insider Emails & Alerts
Site highlights each day to your inbox.