The global financial crisis provides both a challenge and an opportunity for the Chinese currency to become a reserve, but it will take China two decades to realize the ambition, a visiting Chinese economist said on Tuesday.
Shen Minggao (沈明高), chief economist of the Chinese-language caijing.com (財經網) business Web site, said the yuan will have to become a regional anchor currency before it can compete with the greenback or euro as a world reserve currency.
A reserve currency is a currency held in significant quantities by governments in order to to pay off international debt obligations, or to influence their domestic exchange rate. It is also used for trading commodities on global markets.
Shen, Citigroup Inc’s former head economist in China, said the yuan has favorable qualities to be an anchor, in light of its stable value and the country’s trade deficits with emerging economies.
The latter helps make the currency acceptable to trading partners, Shen said, adding that China can work with Taiwan and Hong Kong on integrating the currency.
To that end, Shen said China’s central bank has to be much more transparent and allow greater freedom in foreign exchange.
Also, the country has to depend more on domestic demand, rather than exports, for its economic growth so that its currency can be less tied to the US dollar, the economist said.
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