It's used as a political tool often of late, but there are surprisingly basic facts about the Chinese currency that many Americans don't know, writes MoneyShow's Terry Savage.
The Chinese currency has taken center stage in some of the economic policy debates leading up to the election. That is because of the perception that China is the source of all our job woes, as their economy continues to grow at a rate four times as fast as ours.
The theory is that by keeping their currency artificially “cheap” against the dollar, it encourages America to import more goods from China—while encouraging job growth there to make all those products.
But this discussion of the Chinese currency leads to some interesting revelations of our general ignorance about Chinese currency, and our trading relationship. For instance, what is the proper name of the Chinese currency?
You’ll hear two terms—and both are correct, technically. The renminbi is the name of the currency system, literally meaning “the people’s currency.” The yuan is the main unit of currency within the renminbi. There are also the jiao (1/10th of a yuan) and the fen (1/10th of a jiao).
This is similar to the British currency system, which is known as “sterling,” while the unit of currency is called the British pound. In America, we refer to our currency system and the individual currency using the word “dollar.”
You will often see the renminbi written as RMB—which is pronounced basically the same as the spelled out word. Since both renminbi and yuan can be used interchangeably, RMB is the easiest way to talk about the Chinese currency.
Where Americans get in trouble is with the pronunciation of the yuan. It is not pronounced like the “won” in wonton soup! Because of the tonal quality of the Chinese language, I am told that few Americans will ever pronounce it correctly.
The easiest written explanation I have seen is this: “It sounds like the abbreviation for the United Nations. Saying "U.N." without taking a pause between the "U" and the "N" sounds very similar to one way a native Mandarin speaker would say the name of the Chinese currency.”
Valuing the Chinese Currency
Now that you know how to pronounce the Chinese currency, it’s important to understand how it relates to the US currency.
As you already know, most currencies around the world “float” in relation to the US dollar. Thus, the dollar may buy more euros on any day, depending on the “strength” of the dollar, and the economic crisis in Europe. Same thing with the Japanese yen, and other major currencies.