With China looking to turn the RMB into a globally traded currency, Forex Report looks at its tumultuous history
Paper currency has a long history in China, with Imperial China being the first country in the world to make use of printed money in the 9th century AD. The history of its modern currency, however, is bound up with China’s tumultuous modern history. The Republic of China made use of various currency types used in different regions and worth varying amounts.
The Renminbi – which translates to “the Peoples Currency” – was first issued by the Chinese Communist Party in 1948, while the country was still locked in a decades-long civil war between Nationalist and Communist forces vying for power. The new currency helped to provide some semblance of economic stability in the areas under Communist control. Once the anti-communist Nationalist forces retreated to the island of Taiwan in 1949 and Chairman Mao and the CCP ascended to power on the mainland, the Renminbi became the official currency of the so called People’s Republic. Financial institutions and foreign exchange were reformed and centralised by the new state, helping to curb the rampant inflation years of war had produced
In 1955, the Communist government reissued the Renminbi. The currency was devalued, with 10,000 old units of the currency convertible to just one. A more modern looking form of the currency was created with another reissue in 1962 in which hand graved printing was used as well as multi colour printing on the paper of the notes.
In the 1980s, under its new and reforming leader Deng Xiaoping, China set about liberalising and opening up the economy to theworld, gradually relaxing once strict control of foreign trade and investment. Since the start of Communist Party control, adhering to a rigid dogma of the command economy and central plan, China’s currency had been unrealistically valued against Western currencies with disregard for market realities. To pursue and facilitate China’s newly found interest in international trade, the Renminbi was devalued to reflect a more realistic price on international exchange markets. The 1980s also saw the physical modernisation of the currency, with its fourth reissue introducing fluorescent and magnetic inks as well as watermarks on notes.
Much to the annoyance of US lawmakers, the Renminbi was pegged to the value of the dollar, at approximately 8.3 Renminbi to one, between 1997 and 2005. During this time the Renminbi was reissued for a fifth time, in 1999, in its now iconic form, recognisable to any follower of Chinese financial news, with the face of the late dictator Chairman printed on the note. In 2005 China un-pegged the Renminbi from the dollar, leading to it being revalued at 8.1 to one. Officially, China’s currency was free floating, its price was determined by the exchange rate mechanism. However, politicians in the US repeatedly accused it of devaluing its currency to accrue undue trade advantages. In 2015, the IMF, previously in agreement with the US, declared that it no longer believed the Renminbi’s value was being manipulated by the Chinese government.