The latest stop on the renminbi’s whistle-stop tour to international stardom is Taiwan. From now on,Taiwanese banks will be able to clear transactions in the “redback”, making Taipei another offshore renminbi centre alongside Hong Kong. With Singapore and London jostling to be next and China now firmly established as the world’s second-largest economy, surely it can only be a matter of time before much of the world’s trade is settled in renminbi and central banks are holding a substantial part of their reserves in the Chinese currency?
Not so fast. The “internationalisation of the renminbi” – and never was something so vital for sophisticated dinner-party chatter so hard to pronounce – is as much hype as reality. A look at history is useful. By the time the dollar supplanted sterling as the go-to international currency around 1925, the US had been the world’s biggest economy for more than 40 years. Even then, it took the first world war and massive disruption of European trade to cement its place. True, China’s industrialisation is happening at warp-speed. It is possible that the internationalisation of its currency will move at a similar pace. But there are reasons to doubt that the renminbi is yet ready to join the dollar, or even the euro, as a global currency.
The Asian Century Report 