While China's proposal for a super-reserve currency did not make tangible progress at the G20 summit, it wasn't meant to.
Instead, it did what it was intended to do: allow China - the largest holder of US debt - to voice unease about US monetary policy.
At the G20 meeting, Chinese President Hu Jintao called for enhanced supervision over major reserve-currency issuing economies and an overhaul of the international monetary system.
Hu's call was not, Chinese analysts told Xinhua, a signal that China wanted its own currency, the yuan, to supplant the US dollar.
What comes next for the yuan is, however, a challenge for China's policy makers as they manage the world's third-largest economy.
They want the currency to have a bigger global role but are wary of sudden or excessive change, so they are taking gradual steps to make it easier to use in trade and investment.
But any major global role might be as far as 10 years to 30 years off, analysts in China admit.
As it has felt the danger of excessive dependence on the US dollar, China has taken new measures to raise the global stature of the yuan, or Renminbi.
The biggest obstacle to the yuan's use as a reserve currency is that it isn't fully convertible. China is seeking ways to change that situation.
The State Council, or cabinet, said last month that it planned to turn Shanghai into an international financial hub by 2020 - a goal, in the eyes of many experts, that won't be achieved without full convertibility.
The plan "implies that China will eventually make the yuan fully convertible," Xiao Geng, director of the Brookings-Tsinghua Center for Public Policy, told Nanfang Weekly.
He said the implications of the financial blueprint for Shanghai extended far beyond the city, because the city's role was part of a national strategy.
It usually took 10 to 20 years for developed countries to achieve full currency convertibility in their capital account.
For China, the year of full convertibility was likely to be 2016, Chen Yulu, finance professor and vice president of Renmin University of China, told Xinhua.
He laid out a timetable of global currency status: 10 years to expand the yuan's use in neighboring countries and regions, another 10 years to bolster its role in Asia and yet another 10 years to become a reserve currency.
China allowed the yuan to become convertible in the current account on December 1, 1996, but it hasn't yet opened its capital account to foreign investors for fear of a massive capital outflow in the case of a crisis, which could damage the country's financial system.
A few programs have offered foreign investors chances in China's capital market. They include the Qualified Foreign Institutional Investor plan, under which foreign investors can buy yuan-denominated bonds and shares under a quota.
"We should increase the quota and allow foreigners to invest in more types of yuan-denominated assets and financial derivative products, which would bolster their willingness to hold Renminbi," said Xu Mingqi, researcher with the Shanghai Academy of Social Sciences. "More policy support is essential," he said.
China has also been arranging currency swaps with trading partners to bypass the US dollar in trade settlements.
Since mid-December, China has signed currency swap contracts worth 650 billion yuan (US$95.6 billion) with six central banks including those in Malaysia, Indonesia, and Argentina.
These swap accords allow other overseas central banks to lend yuan to local importers who want to buy Chinese goods. Since these deals bypass the US dollar, they reduce exposure to exchange-rate volatility and cut transaction costs for both parties.
The rules are also good for Chinese exporters, who have long had to bill their foreign customers mainly in US dollars.
Pilot programs Last December, China announced pilot programs to settle trade deals in yuan between the country's two economic powerhouses, Guangdong Province and the Yangtze River Delta (which includes Shanghai) and the two special administrative regions of Hong Kong and Macao.
Trade value among these regions comprised more than half of the country's total last year.
A similar arrangement has been proposed for exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China, which will be allowed to use the yuan to settle trade with the Association of Southeast Asian Nations members starting this year.
Details of that program haven't yet been disclosed, but experts told Xinhua that it would be yet another step leading to greater use of the yuan offshore.
Smaller arrangements using the yuan in trade actually date back to the 1990s and involve eight close neighbors such as Vietnam, Nepal and Russia. Last year, trade worth 23 billion yuan was settled in yuan between China and these eight border nations.
But at the equivalent of about US$3.4 billion, that was only a minute portion of the trade between China and those countries last year, which was expected to be at least US$95.48 billion.
As the largest creditor of the United States, China has made several recent comments on its concern about the safety of its US dollar assets.
For example, President Hu has called for "enhanced supervision" of the macroeconomic policies of various countries, the major reserve currency-issuing nations in particular, with a special focus on their monetary policy.
Zhou Xiaochuan, governor of the People's Bank of China (PBOC), the central bank, last month called for a super-sovereign currency to end the US dollar's dominance as an international reserve currency.
Zhou suggested overhauling the global monetary system by boosting the use of Special Drawing Rights (SDRs), a monetary unit used by the International Monetary Fund) as an alternative to the US dollar.
His proposal sparked heated discussion among world leaders, but so far, there has been more talk than action.
Zhou's idea was supported by Russia and Brazil, but it was dismissed by US President Barack Obama, who said he did not believe there was a need for a global currency.
In many experts' view, the US dollar won't lose its global dominance overnight. So it's not entirely surprising nor disappointing that the G20 leaders did not reach a consensus on China's proposal.
(The authors are Xinhua writers.)
(Shanghai Daily April 10, 2009)