Business leaders have mixed views about how soon the Chinese currency might replace the dollar as the world’s dominant currency as Beijing promotes greater use of the yuan. Some say Beijing must carry out more reforms for that to happen.
Even as the United States and other countries complain that China’s yuan is deliberately undervalued, Beijing is pushing to make its currency more internationally accepted, commensurate with its growing economic influence.
Chinese officials say they want to make the yuan a global currency like the dollar. And President Hu Jintao told the Wall Street Journal this month, that the global financial system dominated by the dollar is a "a thing of the past”.
"It’s one of the first times that a country has actively tried to promote its own currency as an international currency, most other currencies like that have had that role thrust upon it," said Robert Mundell, an economics professor at Columbia University in New York.
But while many business leaders agree that the yuan, also called the renminbi, will eventually reach global stature, they say it is unlikely to replace the dollar anytime soon.
"I don’t see in the short term the renminbi replacing the dollar," said John Peace, chairman of the British bank Standard Chartered. "What I do see the renminbi becoming as important as the dollar. But I don’t think this necessarily is measured in centuries, I think this can happen quite quickly."
One reason some economists think the yuan will not quickly replace the dollar is that China strictly controls the flow of yuan outside the country.
Foreign companies operating in China usually must convert yuan revenues to U.S. dollars before remitting the money to their headquarters. And those buying goods in China pay for them in dollars.
Starting in 2009, however, China has gradually eased those controls. Trade settlement services in yuan are now being offered outside China. Large U.S. companies like McDonalds and Caterpillar have raised money by issuing yuan bonds in Hong Kong.
But Victor Fung, chairman of Li & Fung, a major supplier to large U.S. retailers, is skeptical that large U.S. companies will start using the yuan.
"Will people be conducting trade in renminbi, or willing to conduct trade in renminbi, to me is going to be the key issue," Fung said. "There, I’m less optimistic about the timing. If I’m a big U.S. retailer buying from China, my exposure is in U.S. dollars, I would love to continue to buy in U.S. dollars. What is my incentive to shift my Chinese purchases to renminbi? I think that’s the most fundamental issue that we want to address if you want to internationalize the renminbi in the short run."
Levin Zhu, chief executive of China International Capital Corporation, and son of former Chinese Premier Zhu Rongji, says the question of how soon businesses will use the yuan for trade hinges on how easily they can exchange it with other currencies.
"I think it should be convertible before it could be really internationalized," Zhu said.
Fully convertible currencies, such as the dollar and the euro, can be changed into other currencies or gold at any time, without government restrictions.
That is not now possible with the yuan. And convertibility has risks because such currencies can swing in value, and China has strongly resisted all pressure on it let the yuan rise in value. Doing so would make Chinese exports more expensive overseas, and economists and political analysts say Beijing does not want to do anything that could reduce jobs.
Still, Chinese authorities are encouraging more yuan-denominated financial products to attract international investors. Reports say Hong Kong’s stock market may see a yuan-denominated initial public offering this year.
Zhang Jianjun is the president of the People’s Bank of China Shenzhen Central sub-branch. He says Beijing plans more such measures.
Zhang says the central bank is studying the use of the yuan in foreign direct investments in China and overseas investments by Chinese companies, which is currently being tested.
He says if the yuan is to be accepted like other major currencies, it must be allowed to flow both ways.