There has been a stream of news on Chinese government's new move to make Yuan global. First, Bank of China recently allowed customers in NYC to open Yuan account; then China is set to allow its firms to trade currency swaps to hedge currency risk starting from March 1st; then foreign firms operated in China, such as McDonald, now will be allowed to issue Yuan-denominated bonds in Hong Kong. According to NYT,
Meanwhile, in Russia, Vietnam and Thailand, some cross-border trades with China can now be settled in renminbi, so that trading partners do not have to convert in and out of dollars. One pilot program lets Russian companies like Sportmaster, a retail chain based in Moscow, buy or sell goods using Chinese currency.
And in New York, the Chinese government has permitted an overseas branch of Bank of China to accept deposits in renminbi. That enables depositors outside China to bet on a currency that is widely expected to appreciate against the dollar over the next few years.
Robert A. Mundell, a Nobel laureate economist whose research is credited with helping develop the euro, says the renminbi’s rise is all but inevitable.
“The RMB is likely to become a reserve currency in the future, even if the government of China does nothing about it,” Professor Mundell said in an e-mail response to questions. He noted that the renminbi was already a regional currency in Southeast Asia, where China had become the dominant trading partner of many countries.
If China does eventually open its capital market by eliminating currency exchange controls, he said, “the progress of the RMB as an international currency will be assured.”
As an influence on global financial markets, the renminbi is “still a distant, distant, distant fourth,” said Albert Keidel, a China specialist at the Public Policy Institute at Georgetown University in Washington. “People are going to start holding more renminbi, but it will be at least a decade or two for it to become a leading world reserve currency.”
I expect that, in an optimistic scenario, Yuan will become fully convertible in five to ten years.