It has had the weakest currency in the developing world, and the Chinese yuan has had the strongest performance of all major currencies in 2019 – except the US dollar
No one expected the renminbi to get a trophy for greatest currency of the year. But it is arguably the world’s strongest major currency, with the weak performance of its US counterpart apparently a reflection of a rising inflation rate and a stronger economy.
The renminbi finished the year at 6.87 to the dollar, a stronger rate than both the Japanese yen and the Swiss franc, which stood at 113.06 and 0.91 respectively. Of the 10 largest currencies with the strongest 2019 performances, the renminbi is in the top five. The renminbi, also known as the yuan, made such a strong gain in 2018 that its monthly value increased by more than 6% in December.
That stronger appreciation also raises the question of whether Beijing has lost the longer-term battle to maintain its role as a reserve currency. In November, Chinese finance minister Xiao Jie publicly listed the renminbi as a reserve currency, a rare move that meant the renminbi had replaced the Swiss franc as one of the world’s top three currencies in the eyes of the International Monetary Fund.
Some doubt China will ever be able to build a currency-managed market economy that satisfies its policymakers as well as overseas politicians, including the US president, Donald Trump.
The renminbi is not managed as tightly as the dollar is, and because foreign exchange controls mean Chinese institutions can’t trade currency in ways that are similar to those in advanced economies.
Despite its strong performance this year, the renminbi looks like its beating the best performing major currencies of 2018. Like the US dollar, the Swiss franc and the pound sterling declined more than 10% against the renminbi in 2018.
The Canadian dollar, Australian dollar and New Zealand dollar all saw their values decline more than 5%. The euro, Japanese yen and the South African rand all lost less than 5%.
In the volatile early days of the trade war between Washington and Beijing, even the renminbi fell 7.5% against the dollar in January 2017.
It has had the weakest currency in the developing world, and has seen the best performance of all major currencies in 2018.
The currency hasn’t had a chance to catch up after a rocky two years, which had seen it lose more than 20% against the dollar. Since the beginning of 2018, the renminbi has added more than 10%.
The renminbi’s pace of appreciation saw it overtake the currencies of Japan, Switzerland and Germany as the world’s strongest major currency. It had long been the second strongest, with the Swiss franc playing a somewhat important role as a safe haven.
Earlier in the year, Goldman Sachs said China was likely to weaken the renminbi to create a less onerous trading environment for Chinese companies. It estimated the currency was not far off from being floated in China.