A former FX official says China should avoid excessive appreciation of the yuan by Reuters

SHANGHAI (Reuters) – Preventing yuan overvaluation should be one of China’s top priorities in managing market expectations and rules, according to a former senior official of the country’s foreign exchange regulator.

One of the challenges of exchange rate fluctuations or flexibility is to overcome the currency by moving away from its economic bases, said Guan Tao, chief economist at BOC International and former head of the Foreign Exchange Payments Department of the State Foreign Exchange Administration (SAFE). ), writing in a social media post over the weekend.

“Market supply and demand were the main driving force behind the yuan rally, and the orderly expansion of domestic foreign exchange purchases and foreign investment channels should be the key to stabilizing the currency,” he said.

It has been the best currency in Asia this year, growing by about 3% against a strong dollar. In trade-weighted terms, the Chinese unit has been strongest since the end of 2015.

“The multilateral yuan exchange rate has raised concerns about competitiveness,” Guan said.

In specific policy suggestions, the former SAFE official recommended a number of measures, including eliminating policy discrimination to allow customers to opt for dry or offshore FX conversion freely, and improving the management of external investment schemes for qualified investors to support their internal FX purchases and FX risk. coverage in domestic markets.

In what is seen as a move to sustain the yuan’s recent strength, the People’s Bank of China has urged financial institutions to hold more foreign currency in reserves for the second time this year, raising the foreign exchange reserve ratio (RRR) by 200 basis points. points (bps) from 9% to 7% from 15 December.