China, with its massive economy and fast-paced growth, has become a hotspot for people and businesses around the world eager to take advantage of its trade opportunities. But surprisingly, many aren’t knowledgeable about Chinese money or even aware that China actually has two currencies (sort of). One is used within the country, and the other is meant for trade with other countries.
What currency does China use? What is RMB? Yen? In this article, we’ll explain the differences between these currencies, why they’re needed, and more.
Introduction
Understanding the difference between the renminbi and the yuan is very helpful if you’re spending or trading money or assets in China. Even though people often use the terms interchangeably, knowing the distinction will save you a lot of confusion. Whether you’re traveling, shopping, or exchanging cash, having a clear grasp of each Chinese currency name will make everything smoother.
For traders, this knowledge is even more important when dealing with exchange rates or transfers. It can prevent any surprises with costs and make your transactions go off without a hitch.
What is the Chinese yuan?
The Chinese yuan is the basic unit of currency in China. It’s an essential part of the country’s monetary system, known as the Chinese renminbi (more on that later). The yuan specifically refers to the currency unit rather than the Chinese currency name.
As a unit of measurement, the Chinese yuan is vital for everyday transactions, trade, and investments within the country. China’s currency controls are designed to stabilize the yuan exchange rate and prevent excessive volatility in the currency market.
Historical roots and evolution of the term
The term yuan first emerged in the late 19th century during the Qing Dynasty as a standard unit of Chinese currency to simplify trade amid a mix of local coins and foreign currencies. Originally tied to silver, the Chinese yuan gained value through the influence of the Mexican peso.
As China changed politically, the yuan became the official currency and replaced other forms of Chinese money. After the establishment of the People’s Republic of China, the renminbi was introduced as the official currency, with the yuan as its basic unit. Today, the Chinese yuan stands as a major player in global finance and reflects China’s growing influence in the world economy.
What is the Chinese renminbi?
The RMB is the official currency of China, often referred to as “the people’s money.” This name embodies its purpose: to represent and serve the Chinese population. After all, the RMB was designed to replace various local currencies and create a unified monetary system.
As the Chinese Communist Party gained control during the latter part of the Chinese Civil War, it introduced a unified Chinese currency in 1948 for its territories. Initially called People’s Bank of China banknotes, it went through several names before being officially designated as renminbi, or “the People’s Currency,” in June 1949.
Functional differences between the Chinese yuan and the Chinese renminbi
Each term in the renminbi vs. yuan discussion serves its own unique role, and we’ll talk about them here.
The Chinese yuan as a unit of currency measurement
The Chinese yuan is subdivided into smaller units called fen, where 1 yuan equals 100 fen. This is similar to how 1 pound equals 100 pence in the UK, or 1 dollar equals 100 cents in the US.
For example, if you buy a snack from a street vendor, you might pay 10 yuan. If you’re at a shop and the price is 150 fen, that would translate to 1.5 yuan. Fen coins are less commonly used today, especially for larger purchases, but they are still important for pricing smaller items.
Chinese renminbi as the official name of the entire monetary system
When people refer to the Chinese renminbi, they’re talking about the overall framework that governs how money functions in China. This includes everything from how the currency is valued in international markets to its role in trade with other countries.
For example, when discussing exchange rates, people use the Chinese renminbi to describe how the local currency measures up against others like the US dollar or the euro.
Practical use of the terms
Getting a handle on the renminbi vs. yuan in everyday life makes their differences even clearer. This real-world application makes things less confusing and makes it easier to manage your money whether you’re in China, or dealing with Chinese currency from anywhere else.
When and where the term Chinese yuan is used
What currency does China use in everyday situations? You’ll primarily hear of the Chinese yuan being used. This is the term you’ll see on price tags and in shops.
For example, if one’s at a local market and spots a bowl of noodles priced at 30 yuan, that’s the amount they’ll hand over to pay. Similarly, when someone’s budgeting for groceries, they might plan to spend around 200 yuan for the week. It’s the everyday currency that people casually reference when discussing prices or expenses.
How and where the term Chinese renminbi is applied
What is the RMB in practical applications, then? As the official currency of China, you’ll encounter this term in financial reports or international discussions.
For instance, if a Chinese company is negotiating a deal with a foreign partner, they might discuss the figures in the Chinese renminbi to emphasize that they are using China’s official currency. If a news article mentions that a company earned one million RMB, it’s clear that they’re talking about the overall economic impact in the context of China’s monetary system.
Myths and misconceptions
The last thing to cover is the common mistakes and misconceptions people have about Chinese money.
Common mistakes in understanding the difference between Chinese yuan and renminbi
A lot of people mistakenly view the Chinese yuan and renminbi as synonymous. As you now know, the Yuan refers specifically to the currency unit, and the renminbi is the formal Chinese currency name in the monetary system.
Also, the symbol for yuan is often represented as ¥. But when referring to the Renminbi in international markets, it is denoted as CNY, like here:
Here’s another area where people make mistakes: the Chinese renminbi is divided into smaller units, including the jiao and fen. One yuan is equal to 10 jiao and 100 fen, and this leads to confusion when discussing amounts.
Debunking myths and clarifying the essence of the terms
Myth | Truth |
The Chinese renminbi can only refer to state-controlled currency. | Renminbi applies to the broader monetary system, including digital and private transactions. |
Yuan is the only denomination in circulation. | In fact, Renminbi includes various units like fen (subunit) and jiao (another subunit), which are part of the Chinese currency system but less commonly used today. |
Many believe they fully understand the Chinese currency system by knowing these terms. | The nuances of China’s economic policies and currency fluctuations are much more complex. |
Summary
The renminbi is the official name of the currency system, and the Chinese yuan is the basic unit of that currency. Within China, they hold the same value, so you can use them interchangeably in everyday transactions. However, knowing the distinction becomes important in international discussions about currency.
That’s basically it. Now that you’ve got a clearer understanding of the renminbi vs. yuan, you’re all set to navigate the world of Chinese money!
