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January 3, 2021 Currency Exchange
4 minutes, 26 seconds Read

Chinese Yuan Forecast for 2020



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Chinese Yuan Forecast for 2020 (CNY to INR Forecast)

Yuan will be the most difficult currency to forecast this year as no one is really sure about the medium and long term impact of the Coronavirus on the Chinese economy. The death toll keeps on rising and though the spread of the virus has been majorly contained outside of mainland China, the scenario inside China remains desperate and shrouded in a mystery currently. There is no indication officially from China or any world health bodies about the likelihood of the virus being contained in China in the near future and therefore no way of saying when the economy will reverse and grow in the long term.

Yuan, which had fallen last year through the 7.0500 level last year as the US-China trade war heated up before the signing of the limited first part of the trade deal, strengthened to nearly 6.85 after the singing of the deal. But as the outbreak of the virus hit the world, yuan fell back to the 7.00 level and any recovery now will depend on the virus plays out. There will be determined efforts from the Chinese central bank (People’s Bank of China) to stop any large continuous depreciation of the currency as that would lead to panic outflows from China and further put pressure on the economy.

PBOC has the largest forex reserves in the world and has enough ammunition to tackle large scale slide of the currency beyond the 7.15-7.20 levels. That could be the weakest level for the Yuan this year but we really have no idea about how things will pan out if the virus keeps on spreading for the next few months. So putting the band to fluctuations in Yuan this year will be an extremely foolhardy mission. We will strongly advise against running any positions in this currency at least for the next few months.

About Chinese Yuan

The official name for the Chinese currency is Renminbi, which literally translates to People’s Currency and is abbreviated to RMB. The Yuan is the basic unit of the renminbi but is also used to refer to the Chinese currency in general, especially in international contexts where “Chinese yuan” is widely used to refer to the renminbi. The distinction between renminbi and yuan is that renminbi is the name of the currency and yuan refers to its primary unit.

The Chinese Yuan is abbreviated as CNY in the international currency exchange market and is further subdivided in 10 jiao, and a jiao, in turn, is subdivided into 10 fens. The official symbol for the Chinese yuan is ¥. However, in most stores and restaurants in China, the symbol is represented by the Chinese character 元 instead, which is pronounced “yuan”.

The Renminbi is issued by the People’s Bank of China, the monetary authority of China. The Chinese Yuan is also counted as one of the world’s reserves currencies. RMB was the first currency from the emerging market nations which was included in the IMF’s basket of special drawing rights only in 2016. As per the latest data (2019), the Chinese Yuan is the 8th most traded currency of the world.

History of Chinese Yuan

The renminbi was first introduced as currency in China by the People’s Bank of Chine only in December 1948. Before that, there were a variety of currencies circulation before in Republic of China’s era. At the time of the introduction of the new currency, China was facing the problem of hyperinflation. The first task in front of then government was to control inflation. Therefore, a currency revaluation occurred in 1955 at the rate of 1 new Yuan which was pegged at 10,000 old Yuan.From 1949 until the late 1970s, the state fixed China’s exchange rate at a highly overvalued level as part of the country’s import-substitution strategy. China’s transition by the mid-1990s to a system in which the value of its currency was determined by supply and demand in a forex market was a very gradual process.

As of 2013 now, the Chinese currency is fully convertible on the current account but limited conversion on capital account. China has also introduced Digital Renminbi in 2019 which is based on cryptocurrency to provide complete cashless experience to foreign travellers.

10 Year Performance of CNY to INR Exchange Rates

Let’s look at the 10 years CNY to INR chart to examine a major trend and overall stability of the Canadian currency. As the graph indicates, Chinese Yuan has appreciated at a very fast pace against the Indian Rupee in the last decade, especially in the 2010-2014 period. This was the period where the Chinese economy became the World’s highest growing economy.

Is the Chinese Yuan a risky currency?

Ans. Chinese Yuan was awarded the status of world reserve currency by the International Monetary Fund in 2015. The Chinese currency was also added to the basket of currencies having Special Drawing Rights in 2016, again by IMF. Given the pace of economic growth and development in China, Yuan is expected to replace the hegemony of the US dollar in the currency exchange market in the coming decades.

Further, China operates on a managed float currency exchange system because of which there is very less volatility in the Chinese Yuan compared to other free float currencies. That way Chinese Yuan is not such a risky currency.

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