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Renminbi/Yuan Confusion and a Singapore Dollar Aside
Thursday, January 24, 2008
The renminbi and yuan relationship is a widespread source of confusion. The basic explanation is quite simple. The renminbi is the official name of China’s currency and translates as the people’s currency. The yuan is the primary denomination of the currency. The closest analogy for the US would be calling our currency the greenback and denominating the currency in dollars. However, in everyday US usage, the dollar is both the name of our currency and the denomination.
Probably compounding the confusion is the history of China having had until fairly recently, a two-tiered currency system. Before December 1996, the renminbi was not convertible for current account payments. Current account payments pertain to international trade. Prior to December 1996, foreigners had to make payments using foreign exchange certificates. Although the renminbi is now convertible for current accounts, it is still not convertible for capital accounts. Capital accounts pertain to transfer of assets. So you can not simply convert dollars to renminbi and buy a Chinese gold mine, etc.
As an interesting side bar, the renminbi is widely accepted in Hong Kong and Macau, but is not the legal tender in either of those administrative regions.
Another regional currency relationship of note is the apparent close relationship between the renminbi and the Singapore dollar. Going back to 1/1/03 (1850 days), the average conversion of the yuan to the Singapore dollar has been .203. High and low points respectively have been .216 and .194. Using the average as a base, this range is 6.4% on the upside and 4.4% and the downside. By contrast, during that same time period the US dollar to Singapore dollar conversion has averaged 1.636 with a high of 1.786 and a low of 1.426. Again, using the average as a base, this range is 9.2% and the high side and 12.8% on the low side. The most recent US dollar to Singapore dollar conversion has been 1.437. In general, since 1/1/03, Singapore dollars have appreciated relative to US dollars.
This 5 year relatively stable relationship between the Singapore dollar and the renminbi seems is unlikely to be due to chance. However, I have not researched that yet—perhaps in a later article.
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David J. Garling, PhD, MD
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