SHANGHAI (Reuters) - China should look to strengthen the role of the yuan as an international reserve currency to help maintain financial stability and deter capital outflows, a senior central bank official said in a commentary on Thursday.
The country should “strengthen the renminbi’s reserve currency status” and its “free usability” amid pressures of currency depreciation, Zhu Jun, director of the international division of the People’s Bank of China (PBOC), said in a Shanghai Securities News commentary.
This would strengthen international trust in the currency, raise tolerance for fluctuations in its exchange rate and “lower the possibility of capital outflows caused by confidence issues,” the official said.
The official’s comments come after U.S. President Donald Trump said his administration would not label China a currency manipulator, backing away from a campaign promise, even though he said the U.S. dollar was “getting too strong”.
The yuan CNY=CFXS fell 6.6 percent against the dollar in 2016, its biggest annual drop since 1994, as it was pressured by worries about slowing Chinese growth and a strong dollar, which has spurred capital outflows from many emerging markets.
“International reserve currency status can greatly increase confidence domestically and internationally in the currency, reducing chances of economic and financial crises,” Zhu said.
He added it also reduced the need to accumulate large foreign exchange reserves.
The yuan joined the International Monetary Fund’s basket of reserve currencies in October last year, a milestone for China to be recognized as a global economic power.
Reporting by Adam Jourdan; Editing by Amrutha Gayathri