Can You Trade the RMB?

China tightly controls the value of its money, but investors can still speculate on the yuan.

China tightly controls the value of its money, but investors can still speculate on the yuan.

The People's Republic of China strictly controls the exchange of its currency, the renminbi, sometimes called RMB. The "yuan," as it's also known, trades within a specified band, with the People's Bank of China setting this as an official exchange rate and not allowing its banks to deviate from that peg. You can still speculate on the currency in the foreign currency markets, and potentially could profit from a successful guess on the renminbi's future value against other major currencies, including the euro, Japanese yen and U.S. dollar.

Currency Rates and RMBs

The RMB is a fixed-rate currency, in contrast to the dollar and other major currencies whose values "float" freely on the foreign-exchange markets. The People's Bank of China issues the Chinese currency and sets the "reference rate," a fixed exchange value that is not allowed to deviate more than 1 percent. In July, 2013, for example, the Bank of China set the reference rate to 6.1751 yuan to the dollar. The fewer currency units that are exchanged for a dollar, the stronger that currency is, and this currency "peg" had been gradually rising for several years. If you believe the yuan will continue to rise, you could simply open a bank account denominated in Chinese money. One example is the EverBank World Currency Access Deposit, which earns interest and is available for IRA accounts. Of course, the yuan could go down, which would lower the relative value of the deposit you made.

Spot Market Trading

Since the yuan still fluctuates within its narrow band, it is possible to trade the currency and earn a profit, or realize a loss, as the spot-market value changes. You can trade the RMB directly by setting up an online foreign-exchange trading account. After funding the account, you can trade currency pairs such as USD/CNY, which is the U.S. dollar versus the Chinese yuan. Going "long" on this pair means speculating that the dollar will rise against the yuan. "Shorting" the pair means you're guessing that the yuan will gain against the dollar.

Exchange-Traded Funds

If the fast-moving currency spot market is not your style, you can invest in the RMB more conservatively with an exchange-traded fund. These funds trade like a stock on the major exchanges, while holding a portfolio of futures contracts and other investments that fluctuate with the spot-market value of their focus currency. Examples include Market Vectors Chinese Renminbi/USD, the Wisdom Tree Dreyfus Chinese Yuan Fund, and CurrencyShares Chinese Renminbi. Exchange-traded funds will charge expenses that you should research in a fund prospectus before committing any of your risk capital.

Chinese Shares

If you're more into long-term investment in the Chinese economy, you can also consider publicly traded companies that are either headquartered or do business in China. Many of these companies list on the New York Stock Exchange and other exchanges, and are as accessible to traders as a conventional U.S. stock. If the RMB rises in value against your U.S. dollars, so will the shares of Chinese companies, but the inverse is also true. As with any investment, there are risks for possible rewards. Along with the currency speculation, you may receive a stream of dividend payments paid by the more established and profitable companies.


About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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