Frequently Asked Questions
What is the difference between renminbi and yuan?
Renminbi (‘the people’s currency”) is the official name of the currency, while yuan is the name of the unit of the currency. RMB is the abbreviation for renminbi.
What does CNY/CNH mean?
CNY (Chinese Yuan), also known as Onshore RMB, is the legal tender in Mainline China, and is issued by the People’s Bank of China (PBOC). CNH (China Hong Kong Yuan) refers to RMB that is traded outside Mainland China. The term CNH was introduced by the industry to differentiate RMB traded offshore from RMB traded onshore.
What does the internationalization of the renminbi mean?
Internationalization of the renminbi means making the Chinese currency accessible outside of China. The process of internationalization benefits China by reducing the economy’s exposure to foreign currency risk and improving trade. The process began in 2002 with the launch of the QFII program and has expanded considerably in the last couple of years with developments such as the Shanghai Free Trade Zone and the launch of new RMB centres around the globe.
What is an RMB Clearing Bank?
The clearing bank facilitates payments and acts as the counterparty to North American financial institutions and to the PBOC. The clearing bank participates in China National Advanced Payment System (CNAPS) and has an account and access to liquidity with the PBOC.
What is the significance of the globalization of the renminbi?
China is the second largest economy in the world and has gradually become more prominent in international trade. Naturally, the importance of the Chinese currency will grow as well.
Why is investing in renminbi attractive?
For an investor, the renminbi offers currency diversification and an opportunity to take advantage of the growth to the Chinese economy. In terms of trade finance, renminbi holders can hedge currency risk and negotiate with their Chinese counterparts, as Chinese suppliers prefer to deal directly in renminbi and avoid exchange risk.
What are dim sum bonds?
Dim Sum bonds are bonds denominated in renminbi. They are attractive to foreign investors who desire exposure to yuan-denominated assets, but are restricted by China’s capital controls from investing in domestic Chinese debt.
Can an overseas individual or company open a renminbi account outside of China?
Yes, provided banks offer renminbi accounts to retail and corporate customers, opening an account in renminbi is as easy as opening an account in every other currency. Several Canadian institutions provide these services.
What channels are available to send RMB payments?
Each bank has its own channel offering for CNH payment, but channels such as electronic payment, host-to-host or paper instructions are usually available.
Are there any restrictions on how long corporates can keep RMB surpluses in their RMB account outside Mainland China?
RMB surpluses can be held in offshore RMB accounts for as long as necessary.
How can FX risk in CNH be managed?
Spot FX, swaps, forwards and options are commonly used to manage FX risk, eliminating the need to use non-deliverable forwards (NDFs).
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