China should make the yuan more flexible and cap the country's current account surplus to help rebalance the economy, said one of a group of influential Chinese economists pushing for faster exchange rate reform. Calls among Chinese academics for greater yuan flexibility have been rising, giving added influence to the camp of policy makers favouring faster currency appreciation to quell inflation.
"We believe benefits from yuan reforms have outweighed risks. The reforms have helped mitigate distortions in exchange rates and international payments and ease inflation pressure," Lu Mai, secretary general of the China Development Research Foundation, told Reuters in an interview.
"What we should consider is not another one-off revaluation but how to improve the managed float regime, including widening the floating band and reinforcing the basket regime."
Lu leads a group of economists from the State Administration of Foreign Exchange and a series of top think-tanks who have issued an in-depth analysis on the yuan. Their work has helped counter a long-held "misunderstanding" that a stronger yuan is a plot used by Western countries to undermine China's economic rise, Lu said.
The government should shun another one-off yuan revaluation similar to the one in July 2005, Lu said, but added it should consider further improvements to the currency regime, including a wider trading band for the yuan and a more robust currency basket regime. Lu said the yuan's rise would help curb inflation, but he cautioned against pinning too much hope on monetary policy tools.