(Yicai Global) Dec. 18 -- I joined the World Economic Institute of the Chinese Academy of Social Sciences in 1979. After the Asian financial crisis broke out, I went to many countries in Southeast Asia for a field trip and found that capital flight was the straw that broke the camel's back. The study of the Asian financial crisis has profoundly affected my position and viewpoint on the issue of capital liberalization.
China has worried about its exchange rate for a long time. The fundamentals of the Chinese economy do not allow the yuan to depreciate sharply. The exchange rate will eventually return to the level determined by fundamentals even if it temporarily overshoots. Capital management also acts as the last line of defense for China.
China's exchange rate system has become increasingly characterized by its floating exchange rates in the past year or so. Of course, the real test has not yet arrived. I hope that the People's Bank of China stays calm when the yuan is volatile in the future. I hope it will keep managing cross-border capital flows without directly intervening in the foreign exchange market.
China's financial management authorities should also vigorously promote the development of the derivative financial market, and provide firms with hedging tools to prevent exchange rate risks. Companies should be made aware that they are responsible for dealing with exchange rate risks, rather than the central bank. It is possible that the yuan will depreciate in the future. It seems necessary that PBOC shows the world as soon as possible that China has turned to a floating exchange rate system. This is of great significance to both the economy and politics in China, which means the US will no longer be able to tag China as an "exchange rate manipulator" whether the exchange rate rises or falls against the greenback.
Yu Yongding, member of the Chinese Academy of Social Sciences and famous economist