China positioning its currency for a run at world supremacy

SHANGHAI — Could the world's currency of choice have the face of Mao Tse-tung on it, not George Washington?

Quixotic or not, the Chinese are preparing for that day.

In a series of what might be called baby steps, Chinese officials recently have moved to globalize the yuan and promote its influence overseas, with Shanghai designated as command central.

Since last December, China has signed deals with six countries, including South Korea, Malaysia and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow foreign companies to pay for goods they import from China in yuan, bypassing the dollar -- the currency that dominates international trade and finance, including foreign exchange reserves.

Beijing is also taking initiatives to use the yuan, also known as the renminbi, to settle trade accounts between some Chinese provinces and neighboring states, starting with Hong Kong.

"The central bank has set promoting the renminbi for payment settlements as the main task for this year's work," said Shi Lei, an analyst in the global financial markets section at Bank of China in Beijing.

China is also spreading the yuan's influence in Asia by making loans and investments in other countries, as well as through its many tourists who carry loads of Chinese currency abroad. In Cambodia, where the dollar has long dominated, a tour guide in Angkor Wat recently asked visitors if they could pay him in yuan.

Meanwhile, Chinese officials have called attention to the risks of an international monetary system that relies on the dollar, which many analysts have begun to see as unstable because of heavy deficit spending embraced by Washington to combat the recession.

China's central banker last week called for the creation of a new global currency, although he didn't propose that the yuan replace the dollar. The idea was quickly dismissed by some U.S. and Western officials, and it didn't get much attention at the Group of 20 summit Thursday in London.

Still, Kirby Daley, a strategist in Hong Kong for brokerage Newedge Group, said: "I think these are very, very shrewd moves" by the Chinese. "The timing is really good."

Daley and other experts say it would take years for the yuan to supplant the dollar; the Chinese currency is currently tightly controlled and not even freely tradable in international markets. It will take time for the yuan to gain international acceptance and for China to reform its capital markets and diversify its economy, crucial preconditions before the Chinese can elevate their currency to rival the dollar.