The Renminbi is the official currency of the People’s Republic of China. However, it is more commonly known by its primary unit, the yuan. Renminbi is a decimalized currency system with subunits in tenths called jiao and subunits in hundredths called fen. Although Hong Kong and Macau are politically parts of China, these two locations use a separate currency. Therefore, the Renminbi is not legal tender in Hong Kong and Macau. The Renminbi is issued and managed by the People’s Bank of China, which was established in 1948. It remained the only legal bank in the country until 1978. The renminbi was introduced in the same year the People’s Bank was founded. After introduction, the currency maintained its value by being pegged to the U.S. dollar, but as China progressed to a free-market economy, it was devalued on several occasions in an attempt to increase China’s industries. Today, many economists and international financial experts claim that the exchange rate of the Renminbi is undervalued compared to its buying power by as much as 37.5 percent.
As of 2005, the renminbi has been floating on the foreign exchange market in a narrow margin that is determined by a basket of leading world currencies. The basket includes the U.S. dollar, Euro, Japanese yen, South Korean won and several other currencies in a smaller proportion. After being removed from the U.S. dollar peg, the Renminbi immediately increased in value on the foreign exchange by two percent. In 2008, the peg to the U.S. dollar was reinstituted. In 2010, it was announced by China that the restrictions placed on the renminbi will be relaxed so the renminbi will once again have market flexibility. China is also working to internationalize the Renminbi with the goal of it being used widespread as a foreign reserve currency. Deals have already been struck with Russia, Vietnam and Thailand that allows trade to be settled directly in renminbi.
Although the yuan has been the primary unit of currency in China for decades before, the Renminbi yuan was not introduced until the Communist Party of China gained control of the country. The Renminbi, or “people’s currency,” was introduced to bring a unified currency system to the nation at the end of its civil war. Currency is circulated through coins and banknotes, which are minted and printed by the China Banknote Printing and Minting Corporation, a state-operated entity.