China’s yuan isn’t yet ready for the world stage, despite Beijing’s big push to turn it into an international reserve currency, according to former Federal Reserve Chairman Ben Bernanke.
Doing so “involves more than just being a strong economy,” Bernanke said in Hong Kong on Tuesday. “To move in that direction, China will have to continue to liberalize its capital account, current trading regimes, and strengthen and deepen its bond markets and other asset markets.”
China has long kept tight control of its currency to ensure favorable exchange rates benefit its export and manufacturing sectors. But the U.S. government and others have criticized the world’s second-largest economy for keeping the yuan, also called the renminbi, artificially low.
Beijing continues to set its daily exchange rate, allowing the yuan to fluctuate within a fixed range, though the government has begun to loosen its grip. Last year, the central bank doubled the permitted trading range for the yuan.
And the yuan has gained about 0.5% against the U.S. dollar in the last year.
That appreciation was significant enough for the International Monetary Fund to declare last week the yuan was “no longer undervalued,” marking a shift in sentiment. But the IMF still urged China to install further reforms, and move toward a floating exchange rate.
Beijing has made clear that it wants the yuan to become a global standard, even prodding the IMF to add the currency to the group that determine the value of its reserves. The set currently includes the dollar, the euro, the yen and the pound sterling.
But Bernanke warned that turning the yuan into a global reserve currency shouldn’t be Beijing’s “ultimate goal.”
“The ultimate goal is to have a stronger, more productive economy,” he said. China should “be focused on broader reforms which lead to longer, more sustainable growth.”
Bernanke acknowledged that some of this drive to elevate the status of the Chinese currency had to do with pride.
“To some extent, this is a matter of national prestige…there’s still a long way to go,” he said.
