Will China make its currency convertible? Or would it rather own the United States?

A report in the Times suggests that China is making serious preparations for internationalising its currency. What does this mean? Well, it may surprise some to hear that the currency of the world’s fastest rising economic power is not formally convertible. You can’t get it at Thomas Cook’s. You’re not allowed to take it out of the country. (Don’t grass me up, but I’ve got 106 renminbi in my wallet. Sod all in sterling, though.) A few years ago a Chinese friend entrusted me with a brown envelope containing £15,000 in Hong Kong dollars to give to her sister who was getting married in Clacton-on-Sea – she couldn’t think of any other way to do it.

International trade in the gazillions, and you can’t exchange currencies except at the Bank of China. It seems bizarre, but just possibly China is poised to throw off the shackles and let the renminbi sink or swim. Hong Kong, in particular, hopes to make use of its semi-detached status to establish itself as China’s offshore renminbi trading centre.

But we should hold our horses. Most Chinese I speak to cannot see this happening for a long time. For China to release control of currency exchange rates would probably be a step too far; partly because they don’t like releasing control of anything, and partly because they are conscious that their safety-first approach serves as insulation. China took only a limited hit in the economic convulsions of 2008: the export trade was badly damaged, but the internal market remained buoyant; the big cities are booming and consuming like anything. And they are aware that this was largely thanks to their protection from the wilder excesses of the West’s casino banks.

Yes, the non-convertibility of their own currency does mean they are forced to maintain massive dollar reserves; but they are in no hurry to replace the dollar with the renminbi as a reserve currency. It would look good: but they can live with massive holdings of US Treasuries, warming their hearts with the thought that democratic (small “d”) irresponsibility is fast turning the USA into a wholly owned subsidiary of the PRC.