Central bank adviser says yuan appreciation necessary

By Kim Young-gyo HONG KONG, April 22 (Yonhap) -- The gradual appreciation of the yuan against the U.S. dollar is necessary to boost the international use of the Chinese currency, an advisor to the Chinese central bank said Friday. "To further develop the Chinese economy and to globalize the yuan, the gradual appreciation (of the yuan) is inevitable," Xia Bin, a monetary policy advisor to the People's Bank of China, said on a twitter-like microblog run by Internet portal Sina.com. He said the Chinese authorities could make the yuan more flexible by making the trading range of the Chinese currency wider against other currencies. The People's Bank of China set Thursday's central parity rate for the yuan at a fresh record high of 6.5228 per U.S. dollar, compared to Wednesday's daily reference rate of 6.5294. It was the highest since July 21, 2005, when China abandoned a decade-old peg against the greenback and shifted to a managed floating exchange rate system. The yuan had been pegged at around 6.83 to the U.S. dollar for two years since the global financial crisis hit the country in 2008. Many market watchers expect that China will allow a small, gradual appreciation of the yuan as it will help reduce inflationary pressure the country is currently facing. Xia, who also heads the financial research institute of the Development Research Center of China's State Council, said that US$1 trillion would be enough for China to hold as foreign exchange reserves. China's foreign exchange reserves increased by US$197.3 billion in the first quarter of this year to $3.04 trillion, despite the country reporting its first quarterly trade deficit in seven years. "The remaining funds should be put in accelerating strategic investment," he said. "Its investment portfolio should be diversified to cover more resources, and science and technology projects."