For the last couple of years the grand panjandrums of Hong Kong's banking sector have banged on relentlessly about how the internationalisation of the yuan is our financial future.
This column has long been sceptical, even when scepticism has been a lonely stance.
Now, however, Monitor has some weighty company. In a new research paper for the Asian Development Bank Institute, Yu Yongding, a former member of the People's Bank of China's monetary policy committee, highlights some of the problems Beijing is running into in its attempts to promote the yuan as a favoured currency for international trade and investment.
Yu points out that while some companies have adopted the yuan as the currency in which they settle international trade deals, those deals are still overwhelmingly invoiced in US dollars. In other words, although people may be paying in yuan, no one is actually pricing anything in the Chinese currency.
What's more, the only reason companies have been settling deals in yuan is to take advantage of a straightforward exchange rate arbitrage.
By far the biggest users of the yuan for trade settlement have been Chinese importers. They don't want to price deals in yuan, because if the currency rises, they will suffer an exchange rate loss. But they have been happy to pay in yuan, because expectations of its appreciation have meant that for the most part the yuan has traded in Hong Kong at a premium to the official rate.
As a result, over the last couple of years, paying in yuan has paid a return to Chinese importers. Meanwhile, those yuan have simply been channelled back to the mainland as capital inflows, exacerbating China's balance of payments imbalance.
Lately, however, as the yuan has stopped appreciating, Chinese importers have had a less powerful incentive to settle in yuan and enthusiasm for the currency has dimmed. As a result, despite what we are constantly told about the inexorable rise of the yuan as an international currency, the growth of yuan transaction volumes in the Hong Kong market has tailed off in recent months (see the first chart).
This waning of enthusiasm has led Yu to conclude that 'progress in the yuan as a settlement currency is superficial'.
To date, Beijing's attempts to internationalise the yuan have been artificial, he argues, based solely on expectations that the currency will appreciate.
That's unsustainable. In the long run, Yu says, the only way China will ever get the rest of the world to accept its currency will be to reform and open up its domestic financial system first. It's what Monitor has been saying all along.
Last Friday Monitor argued against the current of financial market opinion, saying that Beijing's latest interest rate cut would do little or nothing to boost China's economic growth rate.
'With external demand weak, the domestic economy burdened by overcapacity, especially in the manufacturing sector, and the potential for profitable real estate speculation curtailed by Beijing's property market restrictions, the demand for new loans just isn't out there, even at a lower price,' the column argued.
The release of data yesterday showing that China's rate of consumer inflation dropped to 2.2 per cent in June from 3 per cent in May bears out the point.
The latest fall in the rate of price rises means that the real borrowing rate, adjusted for inflation, has climbed to 3.9 per cent today from -0.1 per cent a year ago (see the second chart).
And that's just the benchmark rate. In reality, banks are now charging some 70 per cent of borrowers at rates higher than the benchmark, compared with 60 per cent a year ago.
As a result, the real cost of borrowing from China's banks has risen by more than four percentage points over the last 12 months. In an economy where the real rate of growth has plunged by around two percentage points over the same period, that amounts to one hell of a deterrent to taking out new loans.