China should Free Up Yuan Eventually to Spur Greater Use

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BEIJING, May 19 Reuters China should free up the yuan exchange rate over time to support wider global adoption of the currency, a senior central bank researcher said.

China has been trying to boost the yuans global clout since 2009 to reduce the reliance on the U.S. dollar in trade and investment settlements and challenge the dollars role as the worlds major reserve currency.

But, despite some steps toward liberalization, it maintains a tight grip on the currency due to concerns that excessive volatility could affect cross border capital flows and harm the economy.

We have to admit that under the condition of yuan internationalization, we cant manage the yuan exchange rate. The central bank will eventually give up the exchange rate target, Zhou Chengjun, head of the financial research institute of the Peoples Bank of China PBOC, said in a speech at a recent forum.

Freeing up the yuan also will help the central bank gain more policy independence, Zhou said in the speech published on Wednesday.

The PBOC bank has repeatedly said it had basically exited from regular intervention on foreign exchange, though it continues to strongly influence daily trading moves through its morning guidance rate setting.

China should actively promote the yuan internationalization, as more countries hope to reduce their dependence on the dollar, prompted by Washingtons frequent use of sanctions against some countries, Zhou said.

The yuan is likely to appreciate against the dollar over…

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