The United States and China are two big countries with high influence in the international world, talking about the Chinese Yuan vs US dollar becomes very interesting to discuss the two currencies.
The feud between the two countries began to heat up since Donald Trump made a policy that was the beginning of the trade war between the United States and China. Until now, the feud is still ongoing, where the two countries show off their military greatness with massive military exercises.
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- 1 Chinese Yuan explained
- 2 US Dollar Explained
- 3 Chinese Yuan vs US dollar history
- 4 Yuan and US dollar exchange rate
- 5 US dollar vs Chinese Yuan forecast
- 6 Will the Chinese Yuan replace US Dollar?
- 7 Final Thought
Chinese Yuan explained
China’s currency is the Renminbi, and Yuan is a Unit or fraction of the Renminbi currency. China begins to using the Renminbi in 1949. According to Meriam-Wester, renminbi consists of two words. Renmin means “people”, and bi means “money”, so Renminbi is people’s money.
However, because the issuer is the People’s Bank of China, the money many people call it Chinese money.
1 Yuan Renminbi is divided into 100 fen or 10 jiao. The coin with the smallest value at the moment is 1 jiao. Maybe here makes some people confused. Is China’s currency Yuan or Renminbi? As said earlier Yuan is only a unit of Renminbi.
Yuan consists of coins and banknotes. Currently, the Yuan denomination consists of 0.01 Yuan, 0.05 Yuan, 0.10 Yuan, and 1 Yuan. While the Yuan banknotes consist of 1 Yuan, 5 Yuan, 10 Yuan, 20 Yuan, 50 Yuan, and 100 Yuan denominations.
Yuan is no longer pegged to USD
Historically, the Chinese currency was pegged to the US dollar at 8.28 per dollar. For more than 11 years China has implemented this fixed currency.
However, due to pressure from trading partner countries, especially the US. Finally, the Chinese government stated that they would leave the exchange rate of the yuan to the market forces mechanism against the US dollar.
This means that they revoke the policy of fixing the fixed rate to a floating rate, meaning the fluctuation of the Yuan value depends on market demand. The decision was on July 21, 2005.
The United States is pressuring China because it considers pegging the value of the Yuan against the US dollar only for the benefit of China’s exports so that it is cheaper. The low yuan exchange rate is also seen as triggering the US trade deficit against China which in 2004 reached the US $ 162 billion
Yuan currency used in which country
Please note that the international code for this currency is CNY, but in Hong Kong it is CNH. While the abbreviation is RMB and the symbol is. The CNY and CNH have different exchange rates, but the difference is usually very small.
At the end of 2020, the International Monetary Fund (IMF) will set the Yuan or renminbi as an international currency and be included in the currency of the IMF’s elite club known as Special Drawing Rights (SDR). The IMF has the following reasons:
- China is the second-largest economy after the United States.
- The Chinese currency is used by more than 1,000 banks in 100 countries around the world.
- The Renminbi or Yuan was reviewed in 2010.
US Dollar Explained
US dollar or in its international is USD, this is the currency of the United States with the symbol $. Historically, the first dollar was made in the form of coins and was widely used by Spanish Americans in the 16th to 19th centuries.
At that time, the Treasury through the United States Mint minted the first dollar coin. Physically, US silver coins are similar to Spanish dollar coins.
The US dollar became the official currency of the United States in 1792. Then in 1857, the US Congress decided that they would end the status of foreign coins as legal tender.
In 1944, the developed countries of the world entered into the Bretton Woods Agreement. One of these agreements declared that the US dollar became a global currency. Since then the business map in America has changed, and the US dollar has become a currency that influences the global economy.
US Dollar used in which countries
Referring to Investopedia, countries that use US dollars are not only the United States. But also several countries that have their own sovereignty. The following are countries that use US dollars.
- The United States of America, geographic location in North America.
- Commonwealth of Puerto Rico, geographic location in the Northeastern Caribbean.
- Ecuador, geographic location in Northwestern South America.
- The Republic of El Salvador, geographic location in Central America.
- The Republic of Zimbabwe, geographic location in Southeast Africa.
- Guam, geographic location in Western Pacific Ocean.
- The Virgin Islands of the United States, geographic location in the Caribbean.
- The Democratic Republic of Timor-Leste, geographic location in Maritime Southeast Asia.
- American Samoa, geographic location in South Pacific Ocean.
- Commonwealth of the Northern Mariana Islands, geographic location in Western Pacific Ocean.
- The Federated States of Micronesia, geographic location in Subregion of Oceania.
- The Republic of Palau, geographic location in the Western Pacific Ocean.
- The Marshall Islands, geographic location near the Equator in the Pacific Ocean.
- Panama, geographic location in Central America.
Why American Dollars are used for international trade?
Since the Bretton Woods agreement, the US dollar has been in a stronger position because every time it prints US dollars, it is backed up by gold.
Which before the Bretton Woods agreement, the standard of exchange was still using gold. Therefore, the US dollar becomes a currency that is considered safe, because it is backed up by gold at every value issued. Many other countries buy US dollars because they assume it is the same as buying US dollars as gold reserves.
However, after 1970 the Fed printed US dollars without using gold as backup, they printed money as they need. However, the US dollar influence in the international world has been very large. So that the use of the US dollar still dominates throughout the world. Although without gold reserve.
US dollar dominating currency in the world
There are many reasons why the US dollar became an international currency. Because the United States is a country with a strong economy, a superpower military, and much more.
But in fact for international transactions, the US dollar is more trusted as the standard currency for exchange. According to Thebalance, in 2018 there was $1.671 billion USD in circulation. And again 40% of Debt was issued in US dollars. In forex transactions, 90% of the US dollar becomes a currency that is traded with other currencies.
That is why the US dollar is still an international currency even though now the issuance of US dollars has been separated from gold.
Russia and China called new global currency
In March 2009 Russia and China called for a new global currency that is not linked to the nation directly. China worries that its trillions of US dollar reserves will become useless if the currency falls in inflation.
The concern was triggered by an increase in debt securities which led to the imposition of US dollars which could trigger inflation. China’s next move is to call on the International Monetary Fund (IMF) to develop a currency to replace the dollar.
China’s rapid economic growth made the Chinese renminbi one of the world’s reserve currencies in the fourth quarter of 2016. China wants the Yuan to be fully traded in the global foreign exchange market. and can replace the dollar as the global currency.
Chinese Yuan vs US dollar history
Referring to the history of USDCNY exchange rates from Macrotrends which provides price history since 1981, the value of the Chinese Yuan against the US dollar has significantly increased from year to year.
On January 12, 1981, the value of the merely Chinese Yuan was 1.5600, the CNY price trend had increased wherein 1985 December 30 the price had reached 3.2100.
The price of the Chinese Yuan was made up five years later on December 31, 1990, to reach 5,2400. The value of the Chinese Yuan continued to strengthen and hit an all-time high on February 14, 1994, at 8,7200.
The Chinese yuan held its price against the US dollar above 8,000 through June 2006. Afterward, its prices were below 8,000 in April. In 2008 the price fell again below 6,000 and managed to pass the price of 7,000 in 2019.
However, it rose only a few basis points, and in 2020, although it managed to get past 7,000 again, it was only temporary and the price fell again in the range of 6,000 – 7,000.
While the exchange rate of the US dollar against the Chinese Yuan was highest at the time of writing at 6.57 and low at 6.37 with a change of -0.84%.
Chinese Yuan vs US dollar graph
Yuan and US dollar exchange rate
After China is no longer pegged the Yuan currency against the US dollar, the fluctuation of currency prices will depend on supply and demand that occurs on market mechanisms.
1 US dollar vs Chinese Yuan
The current value of 1 Yuan against USD = 0.15 USD. Meanwhile for 1 USD = 6.48 Yuan.
CNY is the ticker for the Chinese Yuan, while CNH is the Yuan ticker which is widely used in Hong Kong. For the CNHUSD rate at the time of writing 1 CNH = 0.1543055333 USD.
Likewise to convert 1 USD to CNH the current price is 1 USD = 6.480649 CNH. You can use conversion calculator currency with Uniteconterters.
US dollar vs Chinese Yuan forecast
Several forecasting sites predict the price of the US dollar vs. the Chinese Yuan, for the possibility at the end of this year and the next few years. These are some summary forecasts from several sites.
- Tradingeconomics predicts the Chinese Yuan to trade at 6.50 by the end of the quarter and expects the price at 6.57 for the next year.
- Longforecast predicts the Chinese Yuan at the end of 2021 at 6,401 December 2022 at 5,868, 2023 December at 6,096, 2024 December at 6,579, 2025 September at 6,115.
- Wallet Investors predict the Chinese Yuan will fall in the next year, they predict the Chinese Yuan will fall at 6,331, according to their analysis if buying the Yuan at the current price within a year will be devalued.
- Gov Capital, predicts the Chinese Yuan in the next year will fall at 6.348966 from the current price of 6,478. But they predict that in the next five years the Chinese Yuan will rise by 37,266.
- Forecasts.org predicts the Chinese Yuan will tend to stagnate, at the end of 2021 they predict the Chinese Yuan at 6.42, March 2022 at 6.37.
Will the Chinese Yuan replace US Dollar?
China launched a test of the digital yuan last year, this move by China-led analysts to suspect that the issuance of the digital yuan was to replace the US dollar.
However, according to a Bloomberg report, China did not design the digital yuan to replace the US dollar. But it is more emphasized for domestic use.
Furthermore, the PBOC’s deputy governor stated that it aims to enable markets to choose, facilitate international trade and investment.
But on the other side of the United States, President Biden is increasing his scrutiny of China’s progress in implementing the digital yuan. The United States is concerned that the digital Yuan will replace the US dollar in the long run.
China has started developing the digital Yuan in 2014, it becomes the reason the Chinese government banned cryptocurrency because it can disrupt the country’s financial stability which is intensifying E-Yuan in the country.
Some countries are starting to throw away the US dollar
A report from CNBC that several countries have officially agreed to leave the US dollar and use the LCS or Local Currency Settlement facility.
The countries that have agreed are Malaysia, Indonesia, Japan, Thailand, and China. Thus, for trade transactions between countries, they will no longer depend on US dollars but use direct conversion without having to convert to US dollars first.
The US dollar is still strong
However today the US Dollar is still the most important global currency. Because about 59% of central bank reserves and involved in about 90% of all international trade transactions still use US dollars.
And more global debt is mostly dollar-denominated, it will ensure the demand for US dollars will continue for years to come. This is the reason why some analysts believe that the US dollar is still supreme
CNY is currently also traded in the forex market, for traders this is an attractive option, and can trade CNY USD in the spot forex market.
China has grown into a new economic giant and could overtake the dominance of the United States in the next few decades. The military rivalry between China and the United States may trigger a major war involving Russia as well.
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