In recent years, a new active player has appeared on the international financial arena – the Chinese yuan. And now it is already trying to replace the dollar in export-import operations and even influence global pricing.

Economists and financiers are actively debating whether the yuan will become the new dollar. The dollar needs a competitor, and since the euro has not lived up to expectations and has not been able to displace the "American," they are now trying to assign this mission to the Chinese currency. But the main intrigue is not so much what are the chances of the yuan becoming a competitor to the dollar, but the answer to the question of whether China itself needs it. So what are the pros and cons of China's ambitions?

The Chinese currency became a hot topic during the crisis, when the world's leading economies – Europe and the US – fell before the eyes of the astonished public, while the Chinese economy not only failed to follow them, but also demonstrated its growth potential to the world. The Chinese yuan unexpectedly became one of the contenders for the role of reserve currency. And this is far from a boastful attitude: China has come a long and difficult way to this.

In pursuit of this goal, the Chinese authorities, first of all, allowed some Chinese companies to conduct international settlements in the national currency. The next step was to conclude agreements on conducting bilateral settlements in yuan with such countries as Singapore, Malaysia, South Korea, Hong Kong, Indonesia, Belarus, Brazil, Argentina. And recently, at the end of 2010, the yuan came to us in Russia. In December, trading in yuan for rubles began on the MICEX. The decision to launch trading was rather politically motivated. The main conductors of liquidity are Russian subsidiaries of Chinese banks. In fact, Chinese banks set prices on the MICEX based on the offshore Hong Kong market. They also open accounts for banks to conduct settlements. Such a complicated account management regime is based on Chinese currency legislation.

Another point in the policy to strengthen the position of the yuan in the global economy was the signing of agreements on providing loans in yuan on very favorable terms for governments and state-owned companies of other countries. And then there was more. Foreign companies themselves began to show interest in issuing bonds in the national currency of China. The list of such companies included VTB, which attracted 1 billion yuan in a debt placement in 2010.

In addition to China's active purchase of U.S. government bonds, it has also stepped up its activities in Europe. Recently, when the bailout of Greece was being decided, Chinese Premier Wen Jiabao said during a visit to Germany that his country was prepared to expand aid to Europe to overcome its debt crisis and could increase its purchases of sovereign debt in some eurozone countries.

And yet, despite the efforts made, few people seriously believe that the yuan will seriously displace the dollar in the near future. There are many shortcomings that China should pay attention to. For example, although the yuan is gaining weight in the global economy every year, it is still not a freely convertible currency: China has fairly strict currency restrictions. A Chinese company can receive trading revenue from abroad in yuan if it has permission to do so, and not everyone has it. Moreover, the restrictions cover both current and capital transactions. That is, a foreigner cannot buy/sell/pay in yuan just because he wants to. In essence, this is an inability to freely conduct transactions.

In addition, capital transactions also require permission from the National Administration of Foreign Exchange Regulation. As a result, most of China's international trade is conducted in dollars, euros, and other currencies. The consequence of all this is that in addition to the mainland market in China, there is an offshore market in Hong Kong. Most international banks trade in the offshore yuan. It is somewhat more expensive than the "mainland" yuan, but the difference is not very large - about 0.5%. Settlements are made through Hong Kong banks.

The People's Bank of China controls the yuan exchange rate and is perhaps one of the few that knows the real value of this currency; the rest can only guess. But even in this case, the general assumptions of the dissatisfied boil down to the fact that the yuan rate is kept at a low level in order to stimulate exports and support domestic industry.

The prospects for the widespread use of the Chinese yuan in international settlements are still uncertain. China lacks a flexible financial system, the removal of currency restrictions, and transparency in politics and the economy.

But it would be wrong to judge China's intentions so unequivocally. Perhaps it does not need the yuan to become a reserve currency; it is interested in a more closed currency system. It may be imperfect, but it is more or less balanced. The consequences of its imbalance are difficult to predict. With the current trade surplus, China simply does not make sense to issue some kind of global equivalent of value, and given the current situation inside the country, selling the idea of Pax Sinica (Latin for "Chinese peace") to the world is simply impossible. Reserve currency status does not solve any of the problems facing the Chinese; it only introduces an additional variable into an already complex equation that the ruling Communist Party has been trying to solve for the past quarter century.

The wise Confucius once said: "Sit quietly on the riverbank, and sooner or later the corpse of your enemy will float by." China is in no hurry and is waiting, while the whole world is wondering who will eventually float by.

The author is the Chairman of the Board of Absolut Bank.

Can the Yuan Become a Competitor to the Dollar?