(Yicai Global) Sept. 18 -- Now is a good time to push forward yuan internationalization, but the time is not ripe for reforming the exchange rate setting mechanism, Chinese Securities Journal quoted Sheng Songcheng, a counselor at the People's Bank of China, as saying at the China-Singapore Executive Forum 2017.

China's foreign reserves continued to increase over the past seven months and are large enough to meet precautionary demand, he said. The opening bond market creates more channels for the repatriation of Chinese currency.

As the yuan becomes more resilient, China will cut back its foreign exchange reserves, he said.

Internationalization of the yuan is a long-term goal, and it should be pushed forward when the time is right, he said. Globalization of Chinese companies and the One Belt, One Road initiative have created favorable conditions as well as new demands for yuan internationalization, Sheng said.

The retooling of the exchange rate formation mechanism should be introduced ideally at a time when the yuan's exchange rates have stabilized, said Sheng.

"The yuan's exchange rates have not stabilized, and reforming the exchange rate formation mechanism may lead to an increase in market volatility," he said. "An upward or downward swing in exchange rates will harm the economy. Also, there's still significant uncertainty surrounding the global economy, and the US economy in particular, so it is in China's interest to maintain exchange rates at a stable level. Moreover, a reform of the exchange rate formation mechanism should be implemented in tandem with reforms in the financial sector and the real economy, and 'one-sided development' should be avoided."

With the existing foreign exchange formation mechanism, exchange rates of the yuan are determined based on closing rates and changes in exchange rates of a basket of currencies within a macro-prudential management framework, he said.  Chine should not change the current model for the time being, he said.