SEOUL – Last month, China
unveiled its first aircraft carrier, and is gearing up to challenge the
United States in the South China Sea. By initiating a plan to
internationalize its currency, China is similarly seeking to challenge
the dollar on the international stage.
In
carving out a global role for the renminbi, Chinese policymakers are
proceeding deliberately. In the words of the venerable Chinese proverb,
they are “feeling for the stones while crossing the river.”
The
authorities’ first step was to authorize Chinese companies to use the
renminbi in cross-border trade settlements. As foreign firms exporting
to China accepted payment in renminbi, the currency piled up in their
bank accounts in Hong Kong. That led to the next step: Foreign firms
wishing to invest in China were allowed to tap those deposits by issuing
renminbi-denominated bonds, and eligible offshore financial
institutions were permitted to invest renminbi funds in China’s
interbank bond market.
