MNI POLICY: Ex-Advisor Suggests China Cutting Dollar Reliance

     BEIJING (MNI) - China should decidedly and gradually reduce its reliance on

the dollar after the U.S. escalated trade frictions to a financial war by

labeling the Asian country a currency manipulator, a former policy advisor and

chairman of China Finance 40 Forum Executive Council said on Saturday during

China Finance 40 Yichun Forum.

     Chen Yuan, who also served as a vice chairman of the Chinese People's

Political Consultative Conference and head of the China Development Bank, spoke

at Yichun, northeastern Heilongjiang province. Here are Chen's major points:

     -China should increase the use of other currencies in the process of

development to reduce reliance on the dollar, but this should be done gradually

given the U.S. dominates the international payment, investment and reserves at

present. China should change the view that U.S. treasuries are wealth but start

to set steps to replace them, again gradually and over the long-term, with other

forms of wealth.

     -China should make the yuan more flexible and keep necessary management of

capital flow in case the U.S. expands financial sanctions. China should observe

international rules and garner more global support. The yuan's

internationalization should be accelerated and its use in commodities needs to

be further increased to channelize the process, including the use in oil, iron

ore, agricultural produces.

     -The labeling against China was a signal that bilateral trade tensions have

escalated to a war in finance. China should be well aware that the yuan is still

comparatively weak globally and prepare for a prolonged confrontation.

     -China cannot decouple from the U.S. in finance given it holds about USD1

trillion treasures, which also makes U.S. dependent on China. But China should

prepare for the worst scenario that the U.S. may employ more tools and methods

of containment.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

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