When will the yuan rival the dollar? Many in China think it only a matter of time (15-20 years). Outside China, opinions are more divided. Some think the yuan is already on the verge of displacing the dollar in Asia; others predict it will never get there. China’s leaders talk of the yuan’s internationalisation in peaceful terms. A more diverse monetary system will breed financial stability for the world, they say. But China’s rise poses a serious threat to America. Its emergence as a credible alternative to the dollar would undermine a cornerstone of American power. The dollar’s political leverage will dissipate as the yuan goes global; the economic consequences of the yuan’s rise would be momentous.
The changes required of China to achieve this, however, would be dramatic. China would have to build a complement of institutions similar to America's to persuade investors that the yuan is as reliable. It would need to make its currency truly convertible, stop intervening in its exchange rate and build a big, liquid, transparent bond market, as well as subjecting its financial system to rule of law. If China somehow accomplishes all that, a global monetary system with multiple poles could in theory engender greater economic stability - but with significant risks.