Many economists and other commentators have warmed to the idea of replacing the dollar as an international reserve currency. While it would undoubtedly help the US by enforcing more fiscal discipline, it ain’t going to happen especially regarding the Renminbi. There is no way that the Renminbi will become a reserve currency.

To be an international reserve currency the currency must meet several conditions. The country must have open capital markets; deep, liquid foreign-exchange markets; well developed bond markets; and a more or less flexible exchange rate.

The foreign exchange policy in China is harnessed to an export driven economic policy which would be almost impossible to change with the present political leadership. Although it appears that this policy might no longer be viable, its past success is such that it will be followed for the foreseeable future, because much of the party has so much invested in its success. So its foreign exchange markets and rate will not be opened.

As to the bond market for historical reasons and given the US’s present situation, the Chinese government will never even dream of putting much of its debt in the hands of foreigners who could potentially threaten the party’s leadership. So the policies will not change and the Renminbi will stay at home.