China has both onshore (CNY) and offshore (CNH) versions of its currency - what distinguishes them, and how does it affect USD/RMB trading?

Summary: What You Actually Need to Know About USD/RMB's Two Faces Ever tried to wire money between the US and China, only to find the exchange rate on your trading app doesn’t match what your bank quotes? Or maybe you’ve wondered why there are suddenly two “official” rates for the Chinese yuan? I’ve been there, and after a few trade settlements and a lot of head-scratching, I realized this split—onshore (CNY) and offshore (CNH) RMB—is not just a financial technicality. It’s a living, breathing example of how China manages capital flows and how global finance adapts. In this article, I’ll walk you through what really separates CNY and CNH, how this affects anyone trading USD/RMB, and where it gets messy in real life—complete with regulatory docs, industry chat, and a personal mishap or two. Why Does China Have Two RMBs Anyway? I used to think a currency was a currency—one price, one market. But China is unique. The People’s Republic tightly controls its financial borders, so they designed a two-track system: CNY for inside China, CNH for the rest of the world. Think of it like having one set of rules for home games and another for away games. Here’s what that means in practice: CNY (Onshore RMB): Traded and settled inside mainland China. FX rates are managed (some say manipulated) by the People’s Bank of China (PBOC) within a daily band. CNH (Offshore RMB): Created for cross-border trade, mostly traded in Hong Kong, Singapore, London. The rate is set by global supply and demand—much less direct control by Beijing. The legal basis? The “Regulations of the People’s Republic of China on Foreign Exchange Administration” (see official text), plus specific circulars like the PBOC’s 2010 CNH expansion guidance. How Does This Split Play Out in USD/RMB Trading? Let me walk you through a real scenario. Suppose you’re a US exporter invoicing a Chinese company. You get paid in RMB. You check Bloomberg: the USD/CNY is 7.10. But your Hong Kong bank offers 7.13. Why? Because: The onshore (CNY) market is subject to strict quotas and daily fixing by the PBOC. Only approved banks and corporates can access it directly. There’s a daily trading band—usually ±2% from the fix, set every morning (see PBOC statements). The offshore (CNH) market is open to anyone with an account in Hong Kong, Singapore, etc. No daily band, so rates can fluctuate more based on global sentiment and capital flows. This means USD/CNY and USD/CNH can (and do) diverge—even by 1-2%, especially during market stress. The “two rates” phenomenon is not a bug, but a feature of how China manages its currency internationally. Practical Steps: How I’ve Managed the CNY/CNH Divide First time I tried to hedge RMB exposure for a client, I made a rookie mistake: I quoted a USD/CNH forward, thinking it would settle exactly like a CNY trade in Shanghai. Didn’t work. The counterparty’s mainland bank couldn’t (legally) settle CNH. Had to unwind, lost a few basis points, and got a polite but firm lecture from their treasury team. Step-by-Step: Checking and Using Rates Find the right market: If your business is in mainland China, use CNY rates. For trades in Hong Kong or overseas, use CNH. Screenshot from my Reuters Eikon below shows two USD/RMB quotes side-by-side. Notice the spread! Regulatory compliance: For cross-border payments, banks will ask for documentation to justify CNY flows—reflecting SAFE (State Administration of Foreign Exchange) regulations. Offshore CNH trades usually require less paperwork, but limits may apply. Hedging and risk management: If you need to hedge RMB, match the contract to your exposure. Mainland payments? Use CNY forwards/swaps. Offshore payments or investments? Use CNH contracts. Mixing them up can lead to settlement failures. There are plenty of market guides, but for a solid primer, I like the BIS Quarterly Review on the RMB market—very readable, with charts and real data. Digging Deeper: Trade Certification and Regulatory Gaps One area that often gets overlooked is how “verified trade” affects access to the onshore market. For instance, if you’re an EU exporter, your Chinese client must prove the trade is genuine, filing customs docs and contracts. Otherwise, SAFE won’t approve the CNY conversion. Here’s a quick table comparing “verified trade” standards between major markets: Country/Region Standard Name Legal Basis Enforcing Agency China (Mainland) Verified Trade (真实贸易背景) SAFE Circular [2013] No. 1 (SAFE) State Administration of Foreign Exchange EU Single Administrative Document (SAD) Union Customs Code (Regulation (EU) No 952/2013) National Customs Authorities USA Verified Exporter Program USTR & CBP Rules (CBP) U.S. Customs and Border Protection Case Study: When Standards Clash Let’s say a French electronics exporter sells to a Chinese distributor. The French side uses the EU’s SAD as proof of export, but the Chinese importer must show SAFE that the import is “genuine” per Chinese rules. Documents get lost in translation, SAFE delays the CNY payment. In one forum post (see here), a UK trader got stuck for weeks because the Chinese bank insisted on physical invoices and contracts, not just digital customs entries. An industry expert I interviewed at a Shanghai-based bank gave a blunt summary: “If you want your RMB, better make your paperwork bulletproof. SAFE checks everything, especially for cross-border trades.” Personal Lessons and Market Realities Honestly, the CNY/CNH split has made me double-check every cross-border deal. Once, I even tried to arbitrage a temporary gap between USD/CNH and USD/CNY—only to learn (the hard way) that capital controls mean you can’t just move RMB freely between Hong Kong and Shanghai. Some hedge funds try, but retail players will hit a wall. In busy weeks, the spread can jump. According to Financial Times, the gap hit 2% during trade war flare-ups. So, while this system gives China policy flexibility, it can be a headache if you’re not prepared. My advice? Always check which market your RMB exposure sits in, and match your trading/hedging instruments accordingly. Conclusion and Next Steps To wrap up: The split between CNY and CNH isn’t just a technical curiosity—it’s a deliberate tool of Chinese financial policy, and it shapes how USD/RMB trades globally. If you’re trading, investing, or simply making payments, ignore this at your peril. Always clarify with your counterparties which RMB market you’re working in, get your documentation right for onshore trades, and watch the spread for offshore deals. For those wanting to dig deeper, I recommend reading the BIS RMB market primer and following updates from the People’s Bank of China and Hong Kong Monetary Authority. In the end, the dual RMB system is a reminder: in global finance, context is everything. Sometimes, the same currency really does mean two different things.

Alice's answer to: What is the difference between onshore (CNY) and offshore (CNH) RMB?

Summary: What You Actually Need to Know About USD/RMB's Two Faces

Ever tried to wire money between the US and China, only to find the exchange rate on your trading app doesn’t match what your bank quotes? Or maybe you’ve wondered why there are suddenly two “official” rates for the Chinese yuan? I’ve been there, and after a few trade settlements and a lot of head-scratching, I realized this split—onshore (CNY) and offshore (CNH) RMB—is not just a financial technicality. It’s a living, breathing example of how China manages capital flows and how global finance adapts. In this article, I’ll walk you through what really separates CNY and CNH, how this affects anyone trading USD/RMB, and where it gets messy in real life—complete with regulatory docs, industry chat, and a personal mishap or two.

Why Does China Have Two RMBs Anyway?

I used to think a currency was a currency—one price, one market. But China is unique. The People’s Republic tightly controls its financial borders, so they designed a two-track system: CNY for inside China, CNH for the rest of the world. Think of it like having one set of rules for home games and another for away games. Here’s what that means in practice:

CNY (Onshore RMB): Traded and settled inside mainland China. FX rates are managed (some say manipulated) by the People’s Bank of China (PBOC) within a daily band.
CNH (Offshore RMB): Created for cross-border trade, mostly traded in Hong Kong, Singapore, London. The rate is set by global supply and demand—much less direct control by Beijing.

The legal basis? The “Regulations of the People’s Republic of China on Foreign Exchange Administration” (see official text), plus specific circulars like the PBOC’s 2010 CNH expansion guidance.

How Does This Split Play Out in USD/RMB Trading?

Let me walk you through a real scenario. Suppose you’re a US exporter invoicing a Chinese company. You get paid in RMB. You check Bloomberg: the USD/CNY is 7.10. But your Hong Kong bank offers 7.13. Why? Because:

The onshore (CNY) market is subject to strict quotas and daily fixing by the PBOC. Only approved banks and corporates can access it directly. There’s a daily trading band—usually ±2% from the fix, set every morning (see PBOC statements).
The offshore (CNH) market is open to anyone with an account in Hong Kong, Singapore, etc. No daily band, so rates can fluctuate more based on global sentiment and capital flows.

This means USD/CNY and USD/CNH can (and do) diverge—even by 1-2%, especially during market stress. The “two rates” phenomenon is not a bug, but a feature of how China manages its currency internationally.

Practical Steps: How I’ve Managed the CNY/CNH Divide

First time I tried to hedge RMB exposure for a client, I made a rookie mistake: I quoted a USD/CNH forward, thinking it would settle exactly like a CNY trade in Shanghai. Didn’t work. The counterparty’s mainland bank couldn’t (legally) settle CNH. Had to unwind, lost a few basis points, and got a polite but firm lecture from their treasury team.

Step-by-Step: Checking and Using Rates

Find the right market: If your business is in mainland China, use CNY rates. For trades in Hong Kong or overseas, use CNH. Screenshot from my Reuters Eikon below shows two USD/RMB quotes side-by-side. Notice the spread!
Regulatory compliance: For cross-border payments, banks will ask for documentation to justify CNY flows—reflecting SAFE (State Administration of Foreign Exchange) regulations. Offshore CNH trades usually require less paperwork, but limits may apply.
Hedging and risk management: If you need to hedge RMB, match the contract to your exposure. Mainland payments? Use CNY forwards/swaps. Offshore payments or investments? Use CNH contracts. Mixing them up can lead to settlement failures.

There are plenty of market guides, but for a solid primer, I like the BIS Quarterly Review on the RMB market—very readable, with charts and real data.

Digging Deeper: Trade Certification and Regulatory Gaps

One area that often gets overlooked is how “verified trade” affects access to the onshore market. For instance, if you’re an EU exporter, your Chinese client must prove the trade is genuine, filing customs docs and contracts. Otherwise, SAFE won’t approve the CNY conversion.

Here’s a quick table comparing “verified trade” standards between major markets:

Country/Region	Standard Name	Legal Basis	Enforcing Agency
China (Mainland)	Verified Trade (真实贸易背景)	SAFE Circular [2013] No. 1 (SAFE)	State Administration of Foreign Exchange
EU	Single Administrative Document (SAD)	Union Customs Code (Regulation (EU) No 952/2013)	National Customs Authorities
USA	Verified Exporter Program	USTR & CBP Rules (CBP)	U.S. Customs and Border Protection

Case Study: When Standards Clash

Let’s say a French electronics exporter sells to a Chinese distributor. The French side uses the EU’s SAD as proof of export, but the Chinese importer must show SAFE that the import is “genuine” per Chinese rules. Documents get lost in translation, SAFE delays the CNY payment. In one forum post (see here), a UK trader got stuck for weeks because the Chinese bank insisted on physical invoices and contracts, not just digital customs entries.

An industry expert I interviewed at a Shanghai-based bank gave a blunt summary: “If you want your RMB, better make your paperwork bulletproof. SAFE checks everything, especially for cross-border trades.”

Personal Lessons and Market Realities

Honestly, the CNY/CNH split has made me double-check every cross-border deal. Once, I even tried to arbitrage a temporary gap between USD/CNH and USD/CNY—only to learn (the hard way) that capital controls mean you can’t just move RMB freely between Hong Kong and Shanghai. Some hedge funds try, but retail players will hit a wall. In busy weeks, the spread can jump. According to Financial Times, the gap hit 2% during trade war flare-ups.

So, while this system gives China policy flexibility, it can be a headache if you’re not prepared. My advice? Always check which market your RMB exposure sits in, and match your trading/hedging instruments accordingly.

Conclusion and Next Steps

To wrap up: The split between CNY and CNH isn’t just a technical curiosity—it’s a deliberate tool of Chinese financial policy, and it shapes how USD/RMB trades globally. If you’re trading, investing, or simply making payments, ignore this at your peril. Always clarify with your counterparties which RMB market you’re working in, get your documentation right for onshore trades, and watch the spread for offshore deals.

For those wanting to dig deeper, I recommend reading the BIS RMB market primer and following updates from the People’s Bank of China and Hong Kong Monetary Authority.

In the end, the dual RMB system is a reminder: in global finance, context is everything. Sometimes, the same currency really does mean two different things.