Dollar Is 'One Step Nearer' to Crisis on Burgeoning Debt Burden, Yu Says

By Shamim Adam and David Yong
Bloomberg News
Tuesday, September 28, 2010

China should reduce its holdings of U.S.-dollar assets to diversify risks of "sharp depreciation," Yu said in July. The nation should convert some holdings in U.S. dollars into assets denominated in other currencies, commodities and direct investments overseas, he wrote in a commentary in the China Securities Journal.

The increased convertibility of the yuan will ease pressure on the currency to appreciate, Yu said today at an event organized by Singapore Management University.

The yuan has strengthened almost 2 percent against the dollar since June 19, when China's central bank said it will pursue a more flexible exchange rate. China maintained a peg of 6.83 yuan per dollar from July 2008 to June 2010.

China will independently determine the level of the yuan and the U.S. doesn't need to vote on the issue this week, Vice Commerce Minister Chen Jian said in Taipei yesterday.

The U.S. House of Representatives is due to vote tomorrow on legislation pressing China to raise the currency's value amid assertions the yuan is undervalued and gives the Asian nation a trade advantage. The legislation would let companies petition for higher duties on Chinese imports.

"The basic trend is for an appreciation" of the yuan, Yu said in an interview after his speech today. "No one can predict the specific pace of the appreciation. This is difficult to say as it depends on circumstances. We should not be speculators."