If you visit the Bank of China’s branches in New York or Los Angeles and bring two forms of identification and your cash, you have the opportunity to open a savings or money market account denominated in yuan (renminbi), the currency of China. The interest rate you’ll earn is low, but that would not be the main purpose of opening this account.
Holding an account in yuan will expose you to the booming Chinese economy without the risk of playing in the foreign exchange trading market. If China relaxes its hold on the value of its currency, chances are it will increase — perhaps gradually, perhaps quickly. Not only that, but the accounts at the New York branches of the Bank of China are FDIC insured, so you won’t lose your money if the bank fails. That doesn’t protect you from losing money if the value of the currency decreases.
Banking Deal: Earn 1.20% APY on an FDIC-insured savings account at Barclays.
Don’t look at this as a get-rich-quick scheme. It might make sense to hedge your net worth with foreign currency, particularly when the U.S. dollar is falling out of favor with the rest of the world. A reader emailed me earlier today to ask what I thought about this. At first it seemed risky, but the more I think about it, I think it may be a smart move to get started with holdings in yuan, without sacrificing too much of my liquid investments.
Here are some of the drawbacks.
- Opening the account is more work than what we’ve grown accustomed to. If you live in New York City or Los Angeles, you can get to the branch to open your account easily, but others will have to travel. Currently, there is no way to open an account online.
- A global war between nations, resulting from the shift of economic power, might put investors in a difficult situation. After World War I, many wealthy Americans invested in the rebuilding of the German economy. Following the money, this capital helped finance Germany’s leaders in World War II. As China becomes closer to being the nation with the most economic power globally, will the United States push back to maintain its position?
- China is accused of human rights violations and this leads many concerned Americans not to consider doing business or investing with the country. This is a difficult stance, since many of America’s favorite brands are entwined internationally, including relationships with Chinese businesses. Nevertheless, some may want to avoid doing more to actively help the Chinese economy.
Here is information on opening the savings account at the Bank of China. You can bring a minimum of $500 and exchange the cash for yuan at the bank. The bank will deposit the yuan. For a certificate of deposit, you’ll need at minimum the equivalent of $1,000. Would you consider opening a bank account based in yuan (RMB)?
Updated September 24, 2015 and originally published January 19, 2011.