MNI Policy: Yuan Internationalization Needs Continuity: Zhou

     BEIJING (MNI) - China should ensure consistent policies in promoting the

yuan's  internationalization and avoid letting trade disputes from weakening its

resolve and hurting long-term reform, Zhou Xiaochuan, the former governor of the

People's Bank of China, said at China Finance YiChun Forum on Saturday in the

northern Heilongjiang province held by CF 40, a prominent Chinese think tank.

     Here are the key points made by Zhou:

     - China should maintain policy continuity on yuan internationalization, or

the market may lose confidence, Zhou said. China may have to weigh losses and

gains and be prepared to make compromises. "Since it is hard to reach agreement

on the benefits and return of yuan internationalization, you must make a choice

and accept that you cannot get everything." Zhou cited the Mundellian Trilemma,

a theory stating a country cannot achieve the free flow of capital, a fixed

exchange rate and flexible monetary policy simultaneously. "The yuan

internationalization should proceed in a low profile to avoid unnecessary

guess," Zhou said, stressing it is a market-oriented process.

     - China is not pursuing the completely free use of the yuan, Zhou said. The

free usable yuan largely refers to its use in real economy sector, including

trade and travel, but certain use in financial market shall be done with

caution, Zhou said. "We welcome long and medium-term capital flow, but do not

welcome or will treat differently the short or ultra-short speculative

transactions," particularly for the short-term financial derivative products,

said Zhou.

     - China will continue with the yuan internationalization at a proper and

gradual pace. The yuan internationalization happened earlier than expected as

the global financial crisis shook the dollar's status as an international

reserve currency, Zhou said. The financial sanctions that the Trump

administration has imposed on other countries will influence the status of the

dollar as an international reserve currency and for payment as the relevant

countries would look for replacement. The yuan's internationalization is

promising, even as the process may not be smooth, Zhou concluded.

     - China welcomes other countries to use yuan as forex reserves or

commercial reserves, and the country will facilitate other countries'

investment, for instance, the yuan's use in financing of Belt and Road

Initiative. Meanwhile, China will further open up its financial market to

support the yuan internationalization.

--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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