- MarketPulse - https://www.marketpulse.com -

Why the Chinese Currency Took the Spotlight

China’s market turmoil since the start of the new year has put the spotlight on a not-much-noticed quirk of trading the mainland’s currency: the offshore yuan doesn’t always want to stay in tune with its onshore peer.

What’s the difference between the onshore and the offshore yuan?

While China has slowly been opening its markets, the country still doesn’t allow a completely free flow of capital across its borders. The onshore yuan, also called the renminbi, is constrained by a trading band: China’s central bank, the People’s Bank of China (PBOC), lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate, which is set daily.

But the offshore yuan, abbreviated as the CNH, trades freely, based on market forces.

The offshore market was created in 2010 to help “internationalize” the currency for purposes such as hedging and investment, but not trade. Trade settlement can be done through a designated clearing bank in Hong Kong.

CNBC [1]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [5]

Senior Market Analyst, UK & EMEA at OANDA [6]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all [5])