Expanding our forex offering, we’ve added 23 currency pairs
With the sustained development of the Chinese economy and the prominence of its currency, we’ve now added multiple crosses ranging from the popular dollar and euro, as well as some local currencies that might provide some interesting trading opportunities. Here we’ll try to give you some background and make it easier to understand the dynamics of one of the most curious currencies.
Some get confused when they try to find more information about it and even come across two different names – renminbi and yuan. The distinction between the two isn’t that complex actually and thankfully has similarities to something closer to home.
The renminbi is the official name of the currency. When discussing it as a whole it is correct to use that word, but when it comes to the units of the currency, it’s correct to use “yuan”. The sterling and pound (more or less) have the same dynamic. The first is the currency as a whole and the pounds are its units. In both cases the units have become more popular for describing it in everyday life and trade, but the official name remains and you could come across it in the news or in analyses.
The story of the renminbi mirrors that of China. Being a communist economy, governed by a centralised power structure, the country’s currency was closely watched and manipulated to achieve the government’s goals and to some extent it still is. Before the 1980s it was pegged solely to the U.S. dollar at a rate of 2.46, but with the gradual introduction of capitalist elements in the planned economy a rapid industrialisation was undertaken with the currency seen as a vital part of turning the country into a powerhouse on the back of its large population and potential.
The coding of the currency in the Trading 212 PRO platform is CNH, which is different to the probably more popular CNY and doesn’t contain a letter corresponding to renminbi or yuan. The explanation for this comes from the fact that there are actually two different markets for the currency – one in the country itself and one that is offshore, but still located in Hong Kong.
The main difference between them is that the onshore one doesn’t have large or unmonitored entries or exits of money. The rate is largely determined by the People’s Bank of China and it caters to importers, while the exporters and their foreign partners make their dealings with CNH, although the supply of the money itself is limited by government regulation. The effect of this is that (outside) speculators and traders didn’t have actual money with which to trade and put any sort of pressure on the currency itself.
It’s not only traded on two markets, but it’s rate isn’t determined in the same way as most other major currencies are traded. The CNY and CNH are pegged to a basket (we always imagine a picnic one when we read about it) of currencies that reflect China’s main trading partners. The exact weighting of the currencies in the basket isn’t public, but it’s believed to be dominated by the dollar, euro, yen and korean von, with a smaller role for the British pound, thai baht and russian rouble.
This peg makes the moves in it less pronounced, but its growing number of fans claim that it is one of the best reflections of the 2nd largest economy and it is a nice way to trade by proxy some of the other currencies. Compared to previous periods where the currency could fluctuate between 0.1% and 0.3% from the preset level, there has definitely been an improvement.
For many decades the yuan was shackled. Government officials saw its freedom as a risk of being overrun by the stronger U.S. and its ideologically opposite thinking. Something like part of the sanctions that are being imposed on Russia at the moment. It has been a slow process involving small steps and a cautious approach to opening up, but it is happening and at some point in the not-so-distant future the yuan will turn into a truly major currency, possibly even a reserve one.
Let us know if you have any questions about the new pairs we’ve, their spreads or anything else about them or the platform.