(Yicai Global) June 27 -- An economic advisor at the Bank for International Settlements, or 'central bank for central banks' has warned about the importance of global liquidity as the dollar continues to soar.

Emerging markets fare well in terms of export during dollar highs, BIS Head of Research Hyun Song Shin told Yicai Global in an exclusive interview. But this positive is offset by a weaker currency and a reduction in cross-border lending and investment coming into the country, he added.

Hyun believes that there are more hikes to come from the Federal Reserve, and that these combined with the withdrawal of the quantitative easing policy represent an unprecedented challenge. The main pain points will be how the market responds and how central banks should take control, he said.

The market has gone through a long-term easy monetary policy, and the recent centralized cleaning of investment positions has exacerbated market fluctuations, Hyun added. Developed countries have low bank leverage but should still be prudent withdrawing from an easy monetary policy, and be particularly weary of risks hidden under the surface, he said.

On China, Hyun said that the BIS recognizes the progress the nation has made in deleveraging and cracking down on shadow banking. Required reserve ratio cuts have also sought to create more liquidity for ongoing debt reduction, he added.

The current challenge facing China is finding a way to deleverage sustainably without having a large impact on the market as the economy slows down, Hyun said. The measures the country is taking are positive, and it is natural that tensions will arise from deleveraging, but China can adopt other approaches to solve these problems, he added.

One measure the International Monetary Fund has recommended is for China to cut its required reserve ratio and open up the market to maintain stable liquidity. On June 24, the People's Bank of China announced plans to cut the required reserve ratio at most banks by 50 basis points on July 5, the third reduction this year. It has also gradually decreased the seven-day repo rate in the interbank market, known as DR007, and the Shanghai Interbank Offered Rate.