The hyperbole has been running hot ever since Monday last week, when a pilot programme went live allowing some cross-border trade between Hong Kong and the mainland to be settled in yuan. Although deals worth only about HK$16 million were settled on the first day, many media organisations and commentators cut loose in their coverage. Words like 'historic', 'milestone' and 'landmark' were flung around with gay abandon. 'Yuan to become a world currency,' proclaimed Xinhua, announcing that the internationalisation of the Chinese currency was under way. Hong Kong's banking community got caught up in the excitement, too, with analysts at HSBC forecasting that as much as half of all China's foreign trade could be settled in yuan within just three years. Other commentators hastened to predict that now it can be used to settle cross-border trade, the yuan would soon go on to replace the US dollar as the currency of choice for international commodity dealers, capital market investors and even central bank reserve managers. All these forecasts are far wide of the mark. The yuan may well go on over the coming years to establish a toehold in cross-border trade between Hong Kong and the mainland, as well as in other markets around China's periphery, like Laos. But the chances that it will displace the US dollar either for trade, investment or as a store of value at any point over the next few decades are negligible. We can be fairly sure of that because attempts have been made before to challenge the US dollar. In the late 1980s and the 1990s, Japan tried to promote the yen as a international currency, with little success. And for the past 10 years the world has had a perfectly viable alternative to the US dollar for most purposes in the form of the euro, yet its use is limited. If the world has been slow to take up the euro, it will certainly be in no hurry to adopt the yuan. Consider trade. Although China's commerce with the rest of the world has grown rapidly in recent years, as the first of the two charts below shows, the overall value of the country's foreign trade remains small compared with the external trade of the 16-country eurozone. Yet even though the eurozone surpassed the United States as the world's largest trading power two years ago, surprisingly little of its external trade is invoiced in the euro. According to the European Central Bank, about 38 per cent of international trade is priced in euros. But almost all of that consists of trade among eurozone countries or between the eurozone and its European neighbours. Beyond Europe's periphery, the currency is barely used. If the currency of the world's biggest trading power can't oust the US dollar from its dominant position, then the currency of a trading country half the size certainly isn't going to. What goes for trade applies doubly when it comes to financial flows. The ECB boasts that one-third of all international debt issues are now denominated in euros and that a quarter of all the world's foreign reserves are held in the currency, placing it second only to the US dollar as an investment currency and a store of value. But it is a distant second. According to the Bank for International Settlements' latest survey of the global foreign-exchange market, the euro was involved in 37 per cent of all currency transactions in 2007. The US dollar figured in 86 per cent. Because of China's restrictions on capital flows, the yuan barely registered in the survey. As the second chart below shows, it ranked just 20th in the league table of the world's most traded currencies, far behind the Hong Kong dollar and even below the Polish zloty and the Indian rupee, which is also subject to capital controls. However you look at it, the yuan is still a very, very long way from becoming a world currency.