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Investing in the Chinese Yuan

The Chinese yuan has grown to become one of the world’s major currencies, as the population, economy and international stature of China have grown. Given the growth rate of both the country and the currency, investing in the Chinese yuan is becoming a matter of increasing importance.

The Population of China

With a population of at least 1.4 billion people, China has the largest population in the world. In fact, it’s at least four times larger than the population of the United States, which has 326 million people.

The size of China’s population gives the country a unique status in the world. It is potentially the largest market in the world, particularly as its population grows in prosperity.

And though China is best known for exporting its manufactured goods all over the world, future growth in the country is virtually assured by increasing sales to its domestic population. As both its population and the country’s prosperity grow, China will increasingly become a market unto itself. The country’s ability to produce products at competitive prices for both its domestic population and foreign markets has many believing that it will soon become the world’s largest economy.

“Made in China”

In America, as well as around the world, this stamp appears on a multitude of manufactured products. It is not only an indication that a particular product is manufactured in China, but collectively an indication of China’s economic impact on the world.

Made in China also has significant economic importance, that’s more than symbolic. China’s economy has grown to the point where the country has become the largest manufacturing nation in the world. At $3.7 trillion in 2014 the Chinese economy now represents nearly 30% of the world’s total manufacturing output. What’s more, Chinese manufacturing is nearly twice as large as the US, which produced just over $2 trillion in manufactured goods in the same year.

This manufacturing power has had a significant impact on China’s international trade position. It’s now the world’s leading nation by exports, with nearly $2 trillion in merchandise exports in 2016. China’s exports are one third higher than the United States, and slightly more than the combined European Union.

Why it May be Time to Buy Chinese Yuan

Every major nation has its own domestic currency, and in China it’s the Chinese yuan. It is widely understood that the strength of a nation’s currency is a representation of the power of its economy. For this reason, the Chinese yuan has risen in recent years to become one of the world’s primary currencies.

The combination of population, manufacturing and export has made China the world’s second-largest economy, trailing only the US. And by what is known as purchasing power parity, China is already the largest economy in the world. This has positioned its currency to be a potential competitor to the US dollar, even and eventually as the international reserve currency.

The Shift from the US Dollar to Chinese Yuan

Investment in the Chinese currency can be a solid diversification away from US dollar. The time to invest in the currency would certainly be before it is recognized as an international reserve currency. Given the rapid growth of the Chinese economy, this may happen sooner than most people realize.

Currency Exchange Rates

As is the case with all major currencies, the Chinese yuan trades widely on international currency exchanges, in addition to being the primary internal currency for the nation of China. Unlike many of the currencies of smaller and weaker nations, the Chinese currency is considered a hard currency, sometimes used to settle debts between third-party countries.

The People’s Bank of China

This is the central Bank of China, and it performs a financial service very similar to the US Federal Reserve. It oversees Chinese banks, directs policy on interest rate levels, finances the Chinese government, and works to maintain the value of the national currency.

The People’s Bank of China, also known as the PBOC, is the largest central bank in the world. As of 2017, the bank held $5.3 trillion in assets, which is more than any other central bank in the world. This compares to $4.4 trillion in assets held by US Federal Reserve.

Chinese Yuan Symbol 

The actual name of the Chinese currency is the renminbi, but it is collectively referred to as yuan. The symbol or abbreviation for the currency is CNY, which is loosely the Chinese yuan renminbi. It is issued by the People’s Bank of China, and comes in multiples of one, five, 10, 20, 50 and 100.

Chinese Yuan Exchange Rate

The value of the Chinese yuan is largely determined in the currency markets, at least on an international level. It trades against virtually every other major currency in the world.

The exchange rate can be readily determined by using a recognized currency converter. This will be necessary because the Chinese yuan trades against many different currencies, and a prudent investor will have to understand the various conversions in order to know exactly where the currency actually stands.

For example, the currency could rise against the US dollar, but at the same time fall against other currencies like the euro or the Japanese yen.

Chinese Yuan to USD

If you are a US-based investor, the conversion of Chinese yuan to USD will of course be your main concern. This is also important for international investors, since USD is the primary international reserve currency. That is, all of the world’s currencies are ultimately measured based on their strength (or weakness) compared to the USD.

As of the end of October, 2017, the conversion rate is 1 USD = 6.64697 CNY. The yuan has traded in a very narrow range versus USD for the past year, and its current valuation is at approximately the middle of the 12 month range.

Euro to Chinese Yuan

The euro is generally regarded as the second most widely traded currency in the world. For that reason, knowing the euro to Chinese yuan exchange rate is highly useful. It can be a bellwether of the value of the Chinese currency relative to major global currencies, other than the US dollar.

As of the end of October, 2017, the euro (EUR) to Chinese yuan conversion rate is 1 EUR = 7.74157 CNY. Similar to the Chinese yuan to USD, the yuan has traded in a fairly narrow range for the past year, and is currently sitting just above the middle of that range.

Chinese Yuan News

In the most recent Chinese yuan news, the currency has been increasing against the US dollar. This is being driven by slightly heavier corporate dollar selling, which is in line with the dollar’s movements in the global markets.

The euro is weakening in general, including against that yuan, given the recent events taking place in Catalonia. The referendum in favor of Catalan independence, and the resistance to that movement by Spain’s central government in Madrid, has the euro weakening somewhat.

All of this is indicating a slight trend toward increasing value of the yuan, at least in the near term.

Chinese Yuan ETF

There are different ways to invest in Chinese yuan, including use of a Chinese yuan ETF. The advantage to this form of currency ownership that you don’t have to get involved in the purchase or eventual sale of the currency itself. Instead, you can simply buy into the ETF, which will purchase, hold and manage the currency for you.

This is very similar to the way investors invest money in stocks through ETF’s. Since ETF’s generally function as index funds, investing in the underlying market, they represent something as close to actual ownership of a currency as you can get. Holding shares in an ETF is the rough equivalent of holding the currency itself.

If you would prefer to hold the actual currency, you can invest directly in Chinese yuan through TreasuryVault. Many investors prefer to hold an asset directly, rather than through a fund. And if that’s your preference, we’re here to make it happen for you.