Central Banker Urges Prudent Yuan Expansion

China should maintain a cautious view toward rising market requests to use the yuan as an international reserve currency, warned Yi Gang, a deputy governor for China's central bank.

Yi, who also directs the State Administration of Foreign Exchange, said in an interview with Caixin Media's China Reform magazine that "there is still a long way to go" before the yuan can qualify for status as an international reserve currency.

Against speculation that the yuan may become an international reserve currency, Yi said the market would make the final decision and China, as a developing economy, should be cautious about an expansion of the yuan's influence.

According to Yi, a country's economic capacity, cultural influence, political power and military status are factors that affect whether a currency should be used as an international reserve currency.

Yi called for a more open financial market in China, which is eager to participate in the decision-making process tied to the international monetary system.

"If China's financial market is liberated," he said, "undoubtedly Chinese regulators will have a major say in rule-setting when others enter the market."

Yi also expressed confidence in the capacity of the United States and Europe to rebound from the global financial crisis. He said recent U.S. financial regulatory reform, Britain's financial regulatory framework, and a series of international efforts to improve financial stability have built an international framework for financial regulation that will last at least 10 years. Within this framework, Yi thinks the United States and Europe can expect quick recovery.

The full interview appears in the August issue of China Reform.