Why does China have two currencies?

12 days ago   •   3 min read

By Silverbird Content Team

China is the goose that laid a golden egg. Everyone wants a piece of it.

With the second-largest GDP in the world and a booming economy, global businesses are flooding China to harness the enormous trade opportunities.

However, a surprising amount of global merchants aren’t aware that China has two currencies.

How will that affect your business? This article will explain in detail the two currencies, why there is a need for them and the benefits for companies looking to conduct business in China.


This article at a glance

While most countries have a single currency, China has two currencies – CNH and CNY. Where the former caters exclusively to mainland China, the latter is primed for international trade.


What are reminbi and yuan?

China’s official currency is called Renminbi – it’s also known as the “people’s currency”. In mainland China, it’s officially called the Chinese yuan renminbi (CNY).

Simply put, CNY is used for the domestic market while CNH is used for international trade and payment.

Both currencies are valued at the same amount with the exchange rates set at a ratio of 1:1.

Why does China need two currencies?

When China developed into an industrial powerhouse in the early 1990s, western investors flooded the Chinese market with capital. Business transactions had to be seamless.

To ease the process, China’s banks decided to trade the CNH currency in 2004.

What are the key differences between CNH and CNY?

Even though CNH and CNY share certain similarities, they’re not the same.

China is ruled by an authoritarian government that tightly monitors and controls its citizens. The nation’s currency is no different.

The value of CNY is controlled by the People’s Bank of China, which only allows it to fluctuate within a 2% range of the reference rate. Only China’s residents have access to the CNY market. CNH is used solely for the purpose of international trade.

As a result, there are different regulations and restrictions imposed upon these currencies and their usage.

Example:
Nexus Ltd is a medicinal company based in London that trades regularly in mainland China. For a smoother business transaction in China, Nexus pays its suppliers in CNH.

How does trading in CNH benefit your business?

The renminbi is fast becoming a globally accepted currency. This is good news for businesses located outside China because it makes it easier for them to enter China’s massive market.

Let’s look at the benefits when trading in CNH.

Transparency

Suppliers in China can enjoy relative price transparency when trading in CNH. This is a real boon to global SMEs – after all, price transparency allows you to know the real value of the money with which you are trading.

In other words, you won’t be slapped with random extra charges on any international payment you make. There are no hidden charges. In short, full transparency.

Lower transaction cost

One of the benefits of paying in CNH is its lower transaction cost for international suppliers. Usually, global merchants have to increase the cost of their products, which averages between 2% and 7%. That’s a steep price for most customers.

When a company trades with their partners in China and uses their local currency – for example, the USD – there are hidden transactional charges, and administrative fees ranging between 2%–3%.

China is different, offering lower transactional and administrative fees to sharpen its competitive edge.

No currency fluctuation

When you pay your Chinese suppliers in CNH, they will provide a quote in their local currency, free from concerns about currency fluctuation. As such, the quotation will be more favourable for you than if you were paying in other currencies. Without having to consider currency fluctuation, your business can enjoy more scope in price negotiations.

Global payments made simple

Making international payments shouldn’t be a hassle. The process should be simple and fuss-free and give you more time to focus on your business. Silverbird makes international payments inclusive and accessible. Set up a multi-currency account to make payments without incurring any additional exchange rates. Perform your business transactions with our fast and super-easy international transfer process.

Onboard with Silverbird now.


Author: Renee Yang
Illustration: Kate Faldina

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