In an opinion piece in the Financial Times, Yu Yongding, a former member of the monetary policy committee of the Chinese central bank, calls on China to end its dependency on the US Dollar and float the Renminbi. Yu is not just concerned about a possible long-term decline of the US dollar, and in his conclusion he is clear that China should be wary of all “paper assets of the developed world”:
If there is any lesson China can draw from the US debt ceiling crisis, it is that it must stop policies that result in further accumulation of foreign exchange reserves. Given that many large developed countries are simply printing money (and the recent rumours are that the US might return to quantitative easing) China must realise that it can no longer invest in the paper assets of the developed world. The People’s Bank of China must stop buying US dollars and allow the renminbi exchange rate to be decided by market forces as soon as possible. China should have done so a long time ago. There should be no more hesitating and dithering. To float the renminbi is not costless. However, its benefits for the Chinese economy will vastly offset those costs, while being favourable to the global economy as well.
If Yu Yongding represents the views of Chinese policymakers, the markets should assume there will be no Chinese bailout of the mess in Europe.