Monitor | The road to convertibility is paved with repression
Despite new talk of a five-year timeframe for full yuan convertibility, state firms' inefficiency makes it unlikely that Beijing will loosen its grip
Great excitement followed Beijing's announcement on Monday that it will draw up an "operational plan" this year for deregulating domestic interest rates and making the yuan fully convertible.
A whole legion of analysts reacted by predicting the liberalisation of China's exchange rate during the next couple of years, and full convertibility within five years.
Forgive me if I contain my jubilation. It's that five-year time horizon, you see. Back in 2000 a very senior mainland official told me how Beijing would free China's interest rates and make the yuan fully convertible within five years.
He gave good reasons for this timetable. China's obligations under its World Trade Organisation accession agreement would force Beijing to open its domestic financial sector to foreign competition within five years. Regulated interest rates and controls on capital flows would be untenable after that, he explained. It was in China's interest to press ahead with reform.
Today - 13 years later - he's even more senior, and I gather he's still telling people that full convertibility is five years away.
Clearly there's a problem here. Beijing likes the idea of internationalising the yuan, because that would allow China to pay for its imports with government IOUs, much as the United States does today.