CENTRAL BANK'S ROLE
China's central bank has to be involved in the reform towards a consumption-led growth and help facilitate Renminbi to become part of the special drawing right (SDR) of the International Monetary Fund, he said, adding: "A global reserve currency has huge advantages."
He took the United States as an example, saying the U.S. dollar is the world's most preeminent reserve currency and that U.S. companies do not need to buy foreign exchange for a transaction with foreign companies, and this means the United States does not need to have any foreign currency reserves, nor needs to export more than imports to build up those reserves, but only to feed consumption.
China is making very rapid progress in settling international transactions in Renminbi, from around 2 percent two years ago to the current more than 30 percent, and on the track to reach over 50 percent in the next couple of years, said the researcher.
"And if we have 50 percent settlement, then of course we don't need half of China's foreign exchange reserves. You can use the other half (of foreign exchange reserves) for investment purposes, or use them as starting capital for an investment bank, and then you can lever up the investment bank ten times like other banks do," he said.
"I think these will make China extremely powerful, because the world desperately needs infrastructure investment and many Western countries have too much debt, they cannot afford to make these investments themselves," he noted.
