China rose steadily through the first decade of the new millennium to become one of the elite trading nations, but its currency the renminbi was proving to be a major problem.
Pegged closely to the dollar, the renminbi was giving China an unfair advantage over competing exporters – particularly in the US.
With its currency, unfluctuating against the dollar, and its labour costs, a fraction of those in the US, many rivals were finding China's advantage hard to bear.
Although the Communist Party had set out a long-term plan in 1993 that aimed – eventually – for a free-floating currency, the renminbi gained less than 5% over the next 12 years.
China was caught in a trap too. Its cheap exports meant it was accumulating huge foreign currency reserves, most of which it was recycling into US Treasuries.
"Every time the Federal Reserve eased monetary policy, more money poured in and was spent buying Treasuries, giving the US even lower interest rates," says Simon Derrick, chief currency strategist at Bank of New York Mellon.
"The Fed basically had a free hand," says Derrick. It was almost using China as a conduit for quantitative easing (QE) as the US recovered from the dotcom bust of the early 2000s.
China de-pegs the renminbi
On the morning of 21 July 2005 in London, just as the first day of the first Ashes Test was about to commence, hundreds of forex dealers, analysts and journalists were recalled from Lords to their City desks.
The People's Bank of China allowed the renminbi to fluctuate against the dollar. It immediately climbed more than 2.1% against the dollar to 8.11 – proving, China's critics declared, that the currency had been undervalued all along.
In the following decade, Chinese authorities tinkered with the daily trading band and cross-border programmes as the rest of the world called for further currency reforms.
The notion that China was engaged in a currency war gained traction in the months following the 2008 financial crisis as economies struggled to recover.
If central banks and treasury departments kept their currencies low, your country's exporters could enjoy a competitive advantage.
A series of QE-led devaluations followed in the US, eurozone and other economies, while China used its currency to buy US Treasury and eurozone bonds, thus propping up the dollar and the euro.
However, the US was a big winner of the currency wars.
It was able to devalue the dollar by nearly 30% without incurring excessive inflation – it was merely importing inflation to China, which was keeping its currency tightly managed and exporting cheap goods.
"The US could borrow money in ever greater quantities at ever cheaper rates," says Derrick.
In 2002, China's foreign reserves totalled $220bn. By the end of 2008, it was more than $1tn. China knew it needed to reform its monetary policy.
China tries to slow FX reserves accumulation
In 2009, the first steps towards renminbi internationalisation were taken as other efforts to slow the accumulation of foreign reserves were failing.
By issuing Dim Sum bonds – renminbi-denominated bonds issued in Hong Kong – overseas investors had their first direct exposure to the currency.
Later that year, China allowed settlement in the currency of import and export trade between several Chinese cities and Hong Kong, Macau and ASEAN countries.
By the end of the decade the RQFII programme allowed Renminbi Qualified Foreign Institutional Investors to invest in China's securities market by tying in with various offshore hubs.
"Bolstered by the emergence of offshore hubs in Singapore, London and Frankfurt, the currency has risen to prominence on global spot FX markets and we anticipate that renminbi-denominated trading will continue to grow rapidly over the coming years," says Roger Rutherford at ParFX.
IMF's SDR basket
The most important development in recent years, however, was the inclusion of the renminbi into the International Monetary Fund's (IMF) Special Drawing Rights (SDR) basket of currencies.
China's currency was formally introduced into the SDR in October 2016 and the basket is thus composed: dollar (41.73%), euro (30.93%), renminbi (10.92%), yen (8.33%) and sterling (8.09%).
The SDR acts as a reserve currency, and while of little significance or influence, it is the IMF's preferred unit of account and is therefore of symbolic importance to a country like China, striving to have its currency recognised on an international stage.
"It's a welcome development," says David Becker, head of Asia Pacific at Broadridge. "Central banks have reacted – some 20 central banks now hold reserves in renminbi where previously it had only been about half a dozen."
And this number is expected to quickly grow as central banks look to the importance of China in global trade.
But everything in markets comes back to the question of liquidity – the ease and speed at which assets can be bought or sold in the market without materially affecting its price.
The 2014 launch of the Stock Connect between Shanghai and Hong Kong improved cross-border liquidity by allowing a much broader range of investors to buy and sell mainland stocks, and vice versa.
However, quotas still determined exactly how much trade would be permitted.
While the renminbi, through easier access to Chinese assets for domestic and overseas investors, is much more freely traded in 2017 than it was a decade ago, its liquidity remains limited as it is not a free-floating currency like the dollar or pound.
So if the ultimate aim of China is see the renminbi as a core reserve currency, it still has a long way to go.
And while the People's Bank continues to control capital inflows and tinker with daily trading bands, the same level of liquidity seen in dollar or euro-denominated assets will never be seen in the renminbi.
Some analysts have spoken of squandered chances – that Chinese authorities could have fully liberalised the renminbi when its economy was soaring two or three years ago.
What stopped them? Relentless criticism from overseas authorities. Former US treasury secretary Tim Geithner was a prime example – stopping just short of accusing China of being a currency manipulator.
"China detests international political pressure more than it detests speculative pressure and so this could really complicate the reform timetable," says Derrick.
The present US administration is unlikely to help hurry the process along.
President Trump, even in his election campaign, accused China of stealing US jobs, while current geopolitical tensions over China’s neighbour North Korea keep Sino-US relations on the cool side.
Full currency liberation will happen sooner or later, though.
Incremental loosening of the renminbi's trading band, greater access to mainland securities markets and expanding renminbi settlement of global trade are happening and, at some point, should convince China's monetary authorities that the currency can stand on its own in the international arena.