A central bank researcher should release the yuan to stimulate further use

BEIJING (Reuters) – A central bank researcher said China should gradually release the yuan’s exchange rate to support wider global adoption of the currency.

China has been trying to boost the yuan’s global influence since 2009 to reduce reliance on the US dollar in trade and investment deals and challenge the role of the green currency as the world’s main reserve currency.

But despite some steps towards liberalization, it maintains a tight grip on the currency for fear that excessive volatility could affect cross-border capital flows and harm the economy.

“We have to admit that under the condition of internationalizing the yuan, we cannot manage the currency exchange rate. The central bank will eventually abandon the exchange rate target,” said Zhu Zhengjun, director of the bank’s financial research institute. The people of China, in a speech delivered at a talk forum.

In the speech released on Wednesday, Zhu said that the release of the yuan would help the central bank gain more political independence.

The entity has said several times that it basically exited from regular currency exchange intervention, although it continues to strongly influence daily trade moves by setting the morning guidance rate.

The official said China should actively promote the internationalization of the yuan, as more countries hope to reduce their dependence on the dollar, given Washington’s frequent use of sanctions against some countries.

The yuan is likely to rise against the dollar in the medium and long term due to China’s sustained economic growth and the consequences of the US Federal Reserve’s strict easing policy, Zhu said.

The continued weakness of the dollar helped push the yuan to a three-year high last week. The People’s Bank of China took multiple measures in late 2020 and early this year to stem currency appreciation by reducing capital inflows.

(Co-reporting by Kevin Yao, Editing by Janice Huampaciano in Spanish)