What you need to know about the Chinese Renminbi (CNY)
- simpleisgd
- Jan 29
- 3 min read
Updated: Feb 11
Overview of the Chinese Renminbi (CNY)
The People’s Bank of China (PBoC) manages the Chinese Renminbi (CNY) using a market-based system with reference to a basket of currencies. This means its value is influenced by a mix of global currencies, but it is not fully free-floating.
The Renminbi is partially convertible, meaning it can be exchanged internationally in certain markets but not freely in all situations. There are two main markets for the Renminbi:
CNY: The onshore market, where the currency is directly managed by the PBoC.
CNH: The offshore market, which is more flexible and can be traded outside China.
Currency Products and Tools in the Market
1. Spot Transactions (CNY FX Spot)
Onshore spot FX transactions are available if you can prove an underlying transaction (e.g., importing or exporting goods).
Individuals can exchange up to USD 50,000 per year without providing supporting documents.
Since 2012, some paperwork requirements for businesses involved in importing/exporting have been relaxed for smoother foreign currency transactions.
2. Forwards/FX Swaps
CNY forwards and FX swaps are available for institutions to help manage their currency risks. These instruments allow businesses to lock in future exchange rates for a set period (up to 5 years).
The best liquidity (ease of trading) is usually in contracts that last 1 year or less.
Corporate FX hedging has been made easier with CNY cash settlement for USD-CNY hedging, introduced in 2018.
3. FX Options
Onshore participants can buy and sell FX options (which give them the right, but not the obligation, to exchange currencies at a set rate) on the CNY. These are available with maturities of up to 3 years, but the best liquidity is for contracts of 1 year or less.
Offshore, participants can trade non-deliverable options (NDOs) on the CNY, which settle in USD and have tenors up to 5 years.
4. Interest Rate Options (LPR)
Interest rate options based on China’s Loan Prime Rate (LPR) are now traded. These are used by market participants to hedge interest rate risks.
The LPR has replaced other reference rates as the benchmark for loans in China, and LPR-based swaps are now available for hedging.
5. Cross-Currency Swaps (CCS)
Cross-currency swaps allow institutions to exchange CNY for other currencies, like USD, EUR, or JPY. These swaps have flexible terms and are commonly used by businesses or bond issuers to manage currency risk.
The maximum tenor for these swaps can extend to 10 years, with best liquidity in contracts of 1 year or less.
6. CNY Interest Rate Swaps (IRS)
Interest rate swaps (IRS) are used by institutions to exchange fixed interest payments for floating rates or vice versa, based on the CNY. The Shanghai Clearing House (SCH) clears most of these transactions.
The LPR is now used as the benchmark for interest rates in these swaps.
Key Points to Remember
The Chinese Renminbi (CNY) is closely managed by the PBoC but has become more market-oriented in recent years.
There are a variety of currency management products available, from spot transactions to more complex swaps and options.
The market has seen increased flexibility, especially for businesses, allowing them to hedge currency and interest rate risks more effectively.
This system allows both domestic and international businesses to interact with the Renminbi in a controlled yet flexible way, though there are still restrictions compared to fully convertible currencies.
