As the Chinese economy becomes a more powerful force in international trade and the yuan gains popularity, more investors are looking for ways to obtain exposure to the Chinese currency. While the yuan is still tethered to the dollar and not totally free to trade, it is quickly approaching that status and becoming more accessible to investors. Buying yuan in cash, investing in funds that hold Chinese yuan, and purchasing yuan futures contracts are all options for yuan investors. However, each investment has its unique set of features.
What Are The Benefits Of Investing In The Chinese Yuan
The Chinese government’s yuan depreciation has accelerated, rising from roughly 6.20 yuan to the US dollar (USD) in 2015 to more than 7.10 in 2020.
- The Economy Is Expanding
As the Chinese economy continues to flourish, the yuan coin is gaining international traction, moving China from its position as the top emerging market economy to the world’s number one economy overall. The Asian Infrastructure Investment Bank (AIIB) and the Contingent Reserve Arrangement, which functions as a mini-IMF for the Asia-Pacific region, demonstrate China’s intention to establish a larger position in the global financial system.
- Current Currency Exchange Rates
The International Monetary Fund (IMF) has added the Chinese yuan to its list of reserve currencies to be used in part for central bank transactions, further strengthening China’s position.
Despite the fact that the renminbi and yuan are often used interchangeably as Chinese currencies, the renminbi is the country’s official currency. The yuan is often used offshore–outside of China–to facilitate global and financial transactions, but the renminbi is more typically used onshore–in China.
The reserve currencies are the US dollar, the euro, the British pound, and the Japanese yen. The renminbi’s improved position allows it to be used more often in international trade and financial transactions.
- Capital Restriction
The Chinese government, on the other hand, retains control over the yuan coin and renminbi exchange rates, as well as capital controls that prevent Chinese investors from moving money out of the country. The yuan or renminbi is unlikely to replace the US dollar as the world’s reserve currency until China can completely float its currency and allow unfettered capital investment in and out of the country. Reserve currencies are used to price commodities such as gold and crude oil, as well as to facilitate international trade transactions in developing countries that have less stable currency regimes and banking systems. Nonetheless, it’s safe to conclude that the Chinese currency is on its way to becoming a more important participant in international trade.
Having Yuan Cash Available
The Bank of China has branches in New York, Chicago, and Los Angeles where investors may open yuan-denominated savings accounts or high-yield time deposit accounts in US dollars. To make withdrawals, investors must first convert their funds back to US dollars. As long as money is kept in these accounts, investors benefit from any growth in the value of the Chinese yuan.
Through its WorldCurrency Access Deposit accounts, TIAA Bank also offers the option of creating a yuan-denominated bank account. To start the account, a minimum deposit of $2,500 is needed. They are IRA-eligible, and a monthly maintenance fee may apply. As long as the yuan is a non-deliverable currency, withdrawals may only be made in US dollars. Currency conversions, on the other hand, are often subject to a 1% spread, which is included in or added to the exchange rate conversion.
