How to Invest in the Yuan With ETFs and Direct Buys

Investing in foreign currencies offers a strategic approach to diversifying a financial portfolio and capitalizing on global economic trends. The Chinese yuan, officially known as the renminbi (RMB), is of growing interest to individual investors, reflecting China’s expanding economic footprint. As China’s role in global trade and finance strengthens, the yuan’s international standing has grown, leading to its inclusion in significant global financial benchmarks. This guide provides an overview of how individuals can invest in the yuan, whether through direct currency holdings or financial instruments.

Understanding the Yuan’s Forms

The Chinese currency is formally known as the Renminbi (RMB), with the yuan as its primary unit. Investors must understand the distinction between the onshore yuan (CNY) and the offshore yuan (CNH). These two forms represent the same currency but operate in separate markets, each with distinct characteristics and regulatory frameworks. This dual structure influences their accessibility and exchange rate dynamics for foreign participants.

The onshore yuan (CNY) circulates exclusively within mainland China. Its value is managed by the People’s Bank of China (PBOC), which sets a daily reference rate against major foreign currencies like the U.S. dollar. The CNY fluctuates within a narrow band, typically 2% above or below this central parity rate, reflecting government efforts to maintain stability. CNY transactions are primarily confined to domestic economic activities and subject to stringent capital controls on fund movement.

Conversely, the offshore yuan (CNH) trades in financial centers outside mainland China, with Hong Kong as its largest hub. This market was established in 2009 to facilitate yuan internationalization, allowing greater global usage without impacting mainland China’s controlled financial system. Unlike CNY, the CNH exchange rate is determined by market forces, leading to greater volatility and responsiveness to global economic trends.

While CNY and CNH represent the same currency and maintain a 1:1 exchange rate internally, their exchange rates against third currencies, like the U.S. dollar, can diverge. This discrepancy arises from differing regulatory environments, capital controls, and market liquidity conditions. Factors such as China’s economic growth, inflation rates, interest rate differentials, trade balances, and geopolitical events influence both CNY and CNH, though their reactions may not always be synchronized due to these structural differences.

Direct Currency Investment

Individuals can directly acquire and hold yuan through foreign exchange brokers or by establishing yuan-denominated bank accounts. Each method has considerations regarding accessibility, transaction costs, and risks.

Foreign exchange (FX) brokers offer a common way to trade currency pairs, including the yuan. Investors can open an account with a broker that supports USD/CNH trading, as onshore CNY is generally not directly accessible to foreign retail investors. FX trading can be highly leveraged, magnifying gains and losses, but provides a liquid market for currency conversion. Select a reputable broker and understand their fee structures, including spreads and commissions.

Opening a yuan-denominated bank account in the United States is a limited, but stable, option. A few institutions, like the Bank of China with U.S. branches, offer personal RMB deposit accounts. These accounts typically require a minimum deposit (e.g., $500) and may have monthly maintenance fees, sometimes waived by maintaining a specified average daily balance. While deposits and withdrawals are in yuan, domestic withdrawals are often limited to U.S. dollars; yuan cash withdrawals may be available when traveling to China.

Foreign currency deposits in U.S. banks are generally not covered by Federal Deposit Insurance Corporation (FDIC) insurance, as FDIC protection applies only to U.S. dollar deposits. This lack of insurance introduces risk for those holding significant foreign currency balances.

For U.S. individuals, direct currency investments carry tax implications under Internal Revenue Code Section 988. Gains or losses from most foreign currency transactions, unless classified as “personal transactions,” are treated as ordinary income or loss. This contrasts with capital gains treatment and affects an investor’s overall tax liability. Gain or loss is recognized when the foreign currency is converted back to U.S. dollars or used to purchase goods or services.

An exception exists for “personal transactions,” defined as those where expenses are not deductible as trade or business expenses or for income production. For these, any exchange gain of $200 or less is not taxable, and any loss is not deductible. If the gain on a single personal transaction exceeds $200, the entire gain becomes taxable. This rule applies to currency exchanged for purposes like travel or incidental personal purchases.

U.S. persons holding foreign currency accounts must adhere to reporting requirements, particularly the Report of Foreign Bank and Financial Accounts (FBAR). FinCEN Form 114 must be filed annually with the Financial Crimes Enforcement Network if the aggregate value of all foreign financial accounts, including bank and brokerage accounts, exceeds $10,000 at any point during the calendar year. This threshold applies to the total value across all accounts, not per individual account. The FBAR is due by April 15, with an automatic extension until October 15. Failure to comply with FBAR reporting can result in civil and criminal penalties, even if no tax is owed.

Investment Vehicles with Yuan Exposure

Investors can gain yuan exposure through financial products offering indirect participation in China’s economy. These vehicles provide convenience by trading on established exchanges, often in U.S. dollars, eliminating direct foreign currency transaction complexities. Methods include exchange-traded funds, yuan-denominated bonds, and shares of companies with significant yuan-based operations.

Exchange-traded funds (ETFs) are a popular avenue for indirect exposure. While direct yuan currency ETFs, like the WisdomTree Chinese Yuan Strategy Fund (CYB), have ceased operations, other ETFs focused on Chinese equities offer yuan exposure. Funds such as the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) invest in large and mid-sized Chinese companies. Their performance is influenced by the underlying companies’ yuan-denominated earnings, linking them to the currency’s value.

These equity-focused ETFs trade on U.S. stock exchanges, offering liquidity and ease of access for retail investors. FXI targets the 50 largest Chinese companies, while MCHI provides broader exposure to large and mid-capitalization Chinese firms. Investing in such funds means yuan appreciation against the U.S. dollar could positively impact the dollar-denominated value of their yuan-earning assets, contributing to the fund’s performance.

Yuan-denominated bonds offer another pathway to currency exposure, particularly “Dim Sum” bonds issued in offshore markets. These bonds are typically denominated in CNH and issued in financial centers like Hong Kong, making them more accessible to international investors than onshore CNY bonds. While direct retail investment in these bonds varies, some bond ETFs may include them.

The Chinese bond market, now the world’s second largest, attracts foreign investment due to its diversification benefits and attractive yields. While direct access to the onshore yuan (CNY) bond market is largely reserved for institutional investors, certain emerging market bond ETFs or specialized China bond ETFs may include these instruments, providing indirect retail exposure. Foreign holdings in Chinese bonds have been on an upward trend, reflecting growing international interest.

Investing in U.S.-listed stocks of companies with substantial yuan-denominated revenues or assets also provides indirect exposure. Many Chinese companies, such as Alibaba, JD.com, NetEase, and Tencent Music, are listed on U.S. exchanges through American Depositary Receipts (ADRs). These companies derive a significant portion of their earnings from China, meaning their financial performance is directly affected by the yuan’s exchange rate when translated to U.S. dollars.

As these companies’ profits and valuations are tied to the local currency, a stronger yuan can translate into higher dollar-equivalent returns for U.S. investors. This approach allows investors to benefit from China’s economic growth and the yuan’s appreciation without directly holding the currency. Over 280 Chinese companies were listed on major U.S. exchanges as of early 2025, offering choices across various sectors.

Regulatory Environment and Access

China’s comprehensive capital controls shape the regulatory environment for foreign individuals investing in yuan. These controls maintain a “closed” capital account, meaning money movement into and out of the country is subject to strict rules and approvals. This framework manages financial stability and guides yuan internationalization, but also creates distinct pathways and limitations for foreign investors.

Historically, institutional investors accessed China’s domestic securities markets through programs like the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes. These programs allowed approved foreign institutions to invest in mainland equities and bonds, with QFII using foreign currency and RQFII using offshore yuan. In late 2020, these schemes merged into a unified Qualified Investor (QI) program, streamlining applications and expanding permissible investments for institutional participants.

Individual investors typically do not have direct access to mainland markets through these institutional schemes. However, alternative channels like the Stock Connect and Bond Connect programs, launched via Hong Kong, offer indirect access to specific mainland-listed securities. While primarily designed for institutional flow, these “Connect” schemes allow eligible offshore investors to trade certain Chinese A-shares and bonds, providing a more accessible route than the traditional QFII/RQFII framework.

The People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) are the primary regulatory bodies overseeing foreign exchange activities in China. They establish policies and implement rules governing the yuan’s exchange rate, cross-border capital flows, and financial institution operations. These entities play a central role in managing the balance between promoting yuan usage globally and maintaining domestic financial control.

These regulations mean that while the yuan is increasingly used in international trade and finance, foreign individual investors face a structured environment. The controls create a clear distinction in accessibility and liquidity between the onshore and offshore yuan markets. This regulatory landscape influences available investment products and the ease of moving funds.