Chinese vice-premier Wang Qishan has been appointed to lead a taskforce to make the renminbi the currency of choice for trade settlements, especially with regional trading partners. HSBC economist Qu Hongbin believes this latest salvo in China’s intensifying efforts to ditch the dollar demonstrates the Chinese are moving sooner than most expect to internationalise their domestic currency.
Hu Xiaolian, vice-governor of the People’s Bank of China, is being enlisted to head the research division of the taskforce. Officials from six other central departments have also been drafted to the taskforce.
"China really wants to give a big push in internationalising the renminbi," notes Qu. "Of course it would be a multi-year, long-term process". Still, he adds, the initial stage of expanding the renminbi’s role in trade settlement could be "faster than many expect".
Since China recently became the world’s largest exporter and is the second-largest trading country, expanding the role of renminbi in cross-border trade settlement is "simply a catch-up game," says Qu. "I won’t be surprised if, in the next three to five years, around half of China’s annual cross-border trade is settled in renminbi rather than US dollars."
Given the high volume of China’s trade, even if half of its trade flows are settled in renminbi, that would make it "one of top three international currencies in the world." This, he adds, "will have a substantial impact, not only on China but also the global economy."
I still believe there is no currency that can replace the dollar as the world’s reserve currency in the next few years. But, the Chinese certainly are hedging their bets. Eventually, these efforts will bear fruit.