Geographically, the difference between onshore and offshore exchange rates is the difference between those in mainland China and those outside of mainland China. The onshore exchange rate is the rate of foreign exchange in Mainland China; the offshore exchange rate is the rate of foreign exchange outside of Mainland China. We usually say that foreign currency exchange is usually done at banks in mainland China, so the exchange rate used as the exchange standard is based on the onshore exchange rate.

The Chinese yuan (RMB) trades in two distinct markets: onshore (CNY) and offshore (CNH). Onshore RMB (CNY) is traded within mainland China under strict regulations set by the People’s Bank of China (PBOC), with its value tightly controlled by the central bank. Offshore RMB (CNH), however, circulates outside China—primarily in financial hubs like Hong Kong, Singapore, and London, where it trades freely with minimal restrictions, reflecting global market demand. The key difference lies in accessibility and exchange rate flexibility: CNY is used for domestic transactions, while CNH facilitates international trade and investment. Though their values usually align, discrepancies can arise due to capital controls. CNH plays a crucial role in China’s financial globalisation, enabling foreign investors to trade RMB without onshore constraints.