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Build a strong banking systems in yuan’s internationalization: Bernanke
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China should ensure a healthy banking system and avoid currency mismatch as it pursues capital-account opening and the yuan internationalization, former Federal Reserve Chairman Ben S. Bernanke said in Shanghai today.
“An open capital account is a two-edged sword. It allows foreign investment to come in and boost growth but it would also lead to short-term capital flows that can be disruptive if economy is not strong enough,” Bernanke said today at the Shanghai Forum organized by Fudan University.
“Having a sound banking system that is well-overseen by financial regulators will help China to deal with situations when capital flows out and avoid currency mismatch,” Bernanke said.
China made progress in capital-account liberalization with the launch of a stock trading link between the Shanghai and Hong Kong exchanges, followed by the latest move to allow cross-border sales of investment funds between Chinese mainland and Hong Kong.
China is speeding up its efforts to make the yuan a fully convertible currency to improve the currency’s global influence.
“In the near term, the US dollar will remain the reserve currency because of the depth of the market and the size of the US economy,” Bernanke said.
He said to make the yuan international, China needs to build a very liquid market so that people can sell and buy yuan through various financial instruments as easily as they now trade in the US dollar.
China is seeking to get the yuan included in the basket of major currencies that comprise the International Monetary Fund’s special drawing rights (SDR)-currently made up of dollars, yen, pounds and euros. IMF managing director Christine Lagarde said earlier that it is not a question of 'if' but rather 'when' the yuan will be included in the SDR.
Bernanke said China’s push to make yuan one of IMF’s reserve currencies is partly for “pride and image.”
“It’s just symbolic. Whether the yuan is a SDR currency won’t affect much on the life of average person,” he said.
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