Question

Much has been written recently regarding the Chinese renminbi (RMB) or yuan (CNY), especially surrounding the news of its inclusion in the IMF's SDR basket. Write a 3-page essay (papers should be submitted in an essay format - not a list of answers to questions) addressing the following:

1) Explain the differences and/or similarities between RMB, CNY, CNH, and the CNY-NDF;

2) What is the purpose of the IMF, what is the SDR basket and do you think the recent announcement in the change to the SDR basket is significant?;

3) How does the Chinese government limit the use of the renminbi on the global currency markets? Do you anticipate any change to government policies in the near future;

4) Will the renminbi ever compete with the U.S. dollar as a "reserve currency"?

Answer 1

Establishment of the yuan offshore market China capital control rules did not allow renminbi (denoted as CNY) to be traded outside of China. In-fact,it was a proposal by the Hong Kong Monetary Authority to allow renminbi trading in Hong Kong that opened the dialog of an offshore renminbi market in the china. Thus creating the offshore renminbi (CNH) market where foreign individuals and corporations are allowed to buy, hold or sell CNH. These investors are restricted from participating in the onshore CNY market.These developments were part of China's path toward internationalization of the renminbi, and to make it an international trade currency of choice latest achievement being renminbi's inclusion into the IMF's SDR.

The difference of the RMB, CNY, CNH and the CNY-NDF are the renminbi inside of China (CNY) a wholly different currency to the Renminbi outside of China (CNH), with each trading at different rates.CNY and CNH both have their own separate buy, sell and mid-market rate. CNY is not the rate at which currency can be exchanged.CNH’s rate is not controlled. Its rate is decided almost entirely by the FX markets.The CNY rate at any time can be either below OR above the CNH rate.USD payments into China converted at the CNH mid-market rate would make more money for the supplier than payments converted at the CNY mid-market rate.

CNY is the international currency code for the Chinese Yuan, in much the same way USD and GBP are the currency codes for the US Dollar and the British Pound respectively. Both CNY and CNH stand for Chinese Yuan.
The official name of the currency is renminbi.This is why it can be sometimes shortened to RMB.The different currency symbols are here due to the Chinese Monetary Policy.CNY is the currency symbol traded onshore, mainland of China. CNH is the currency symbol traded outside of China.

The SDR basket is the method of valuation of the special drawing right basket is conducted every five year by the IMF's Executive board or earlier if warranted by developments the purpose of the review is to ensure that the SDR basket reflect importance of major currencies in the world trading and financial system with a view to enhacing the SDR attractiveness as an international reserve asset, Yes the the SDR basket is significant for the RMB, CNY, CNH it will help to ensure that the chinese currency reflect in major currencies.

The chinese government limit the use of the renminbi on the global currency market by making the limit for the use of renminbi outside the country or in internation market. The chinese government is making plans of changing the government policies in the near future to defit the US currently the US dollar is more stronger than chinese.

Yes the renminbi will compete with the U.S. dollar as a reserve currency by making the restriction on the flow of currency in the market make the reserve stategy plan for the country and will give the more support to renminbi duet to proper implmenation on reserve plan the chinese government creating the offshore renminbi (CNH) market where foreign individuals and corporations are allowed to buy, hold or sell CNH will help in compete with U.S. dollar.