Sunday, July 18, 2010

Understanding The Real Chinese Currency And Currency Based Funds


Has ancient China and modern China changed its currency usage? Before discussing the currency of modern day China and its derivatives and currency dealings, it is important to delve into the orient nation's glorious past and understand the root pattern of its currency and finances. China has had a long historical association with monetary development and money printing. It was after all the first civilization to use paper money. It’s said that in the ancient Song Dynasty in China, emperors themselves painted characters on the coins. Times have changed but old habits die-hard it seems as US financial experts have accused the present day Chinese government of not exactly painting dragons and other auspicious patterns but deliberately manipulating its modern day currency. Even as financial experts want the US Treasury Secretary to declare China as a currency manipulator, its also true that equity markets across the world has made handsome gains whenever China has announced plans to make its currency, the yuan, more flexible against the dollar. Before concluding whether China is indeed actively undervaluing its currency or not its important to understand the basic value of the Chinese currency and its formation.

Reality Of The Chinese Currency Drama

China, from its earliest civilizations has always been a clever economy and its certain that it would not enter into an economic suicide by blindly imitating the west. It is also quite clear that the Chinese government would not allow their currency to go down with the dollar ship as most of the export dependent companies of China which form big chunk of current Chinese economy may lose steam as most of them work on very thin margins. Although economists continue to be skeptical about the goodness of the Chinese currency moves, there is no doubt that China is ready to resume greater flexibility with its yuan.

The Ancient Chinese Currency

China led the ancient world by introducing shells as a medium of exchange and unit of account in commerce but later used other materials like pottery, stone, bone, jade, bronze and gold to make shell-shaped money. The bronze shell-shaped coins heralded the mintage of Chinese coin.

Difference Between The Yuan And The Renminbi

The Renminbi (RMB) is the proper name for the Chinese currency as such. Loosely translated it is supposed to mean something like “the people’s currency” or “the people’s money.” Please don’t get caught up trying to attach political connotations to that (remember, US currency is also full of all that “In God We Trust” posturing). The Renminbi distinguishes China’s currency from Korea and Japan, but also from Taiwan, Hong Kong and Macau.

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