(Yicai) Feb. 24 -- China should develop a modern financial system with Chinese characteristics, with the yuan as its monetary foundation, to become a financial powerhouse. This requires the yuan exchange rate to remain stable at a reasonable level.

A ‘powerful currency’ is widely used in international trade, investment, and foreign exchange markets, and holds the status of a global reserve currency. Viewed from the trade, investment, and reserves points of view, maintaining appropriate strength will help the Chinese yuan become a ‘powerful currency.’

China is not only the world’s leading exporter, with an optimized export structure and substantial added value, but also a major importer, with sustained demand for global resources, technology, and talent. In the coming years, an appropriately strong yuan will facilitate its wider use in global trade, help promote Chinese enterprises to go global, and encourage international capital to hold more yuan for investment.

The preservation and appreciation of asset value is a fundamental strategic consideration for reserves. From the perspective of structural diversification, with the further development and opening up of China’s economy, the yuan should account for a rising proportion of foreign exchange reserves held by other countries.

If the Chinese yuan can maintain its strength, it may encourage more countries to hold more of it in their foreign exchange reserves. Conversely, a weak currency will prompt them to strategically reduce the holdings of yuan in their foreign exchange reserves.

Over the past decade, the exchange rate of the Chinese yuan against the US dollar has experienced small fluctuations and a gradual depreciation, moving from USD1 to CNY6.04 in January 2014 to USD1 to CNY7.35 in April 2025. If the yuan remains weak, it will be difficult for the stock market, bond market, and foreign exchange market to see sustained foreign capital inflows.

China’s banking sector is the largest in the world by scale, while its securities, investment banking, and insurance sectors are relatively small and have weak international competitiveness. The relatively weak global operational competitiveness of Chinese financial institutions is largely due to the low degree of global Chinese yuan usage.

If the yuan can maintain moderate strength, it will encourage global operators and investors to hold more yuan. Consequently, the yuan-denominated liabilities and assets of Chinese financial institutions overseas will increase, helping enhance their international competitiveness.

The exchange rate of the Chinese yuan should be based on supply and demand, but this does not mean that policy considerations are unnecessary. A country’s monetary authorities should select favorable exchange rate policy objectives to achieve economic and financial development. Choosing to maintain basic stability at a reasonable and balanced exchange rate level based on supply and demand is a strategic choice.

The author is Lian Ping, president and chief economist of the Guangkai Chief Industry Research Institute.

Editor: Futura Costaglione