...Recent policies adopted by the Chinese authorities can be interpreted as allowing the rest of the world to denominate debt in renminbi. But if trading partners consider that the renminbi is subject to big jump risk, then prospects for its internationalisation are weak. ...
...And if trading partners dismiss the renminbi as simply the US dollar with a greater or lesser trend appreciation, then prospects for its internationalisation are also weak. We have presented evidence to suggest that these views are easily overstated, and that therefore they understate the prospects for the internationalisation of the renminbi. ..."
From the paper, a figure depicting the ratio of forex turnover to trade:
The authors observe:
Use of the renminbi to denominate bonds, official credits and trade could result in the renminbi gaining as a currency in the foreign exchange market. There is ample room for the renminbi to advance in this regard. Between 2004 and 2007, daily trading in the renminbi expanded enough to surpass the sum of daily imports and exports from China (Graph 2). By contrast, even the un-internationalised Indian rupee or the partially internationalised Korean won traded 10 times as much as the sum of Indian or Korean international trade. And thoroughly internationalised currencies trade 100 times as much. The renminbi has a long way to go.