New | Bernanke says PBOC needs to be more transparent on yuan policy

Former US Federal Reserve Chairman Ben Bernanke on Tuesday criticised the People’s Bank of China for not being transparent when explaining its currency strategy to the markets and at the same time said there was no chance the International Monetary Fund’s currency reserves, to which the yuan recently won admittance, would actually become a global reserve currency.

“One of the concerns I have is that the PBOC has not been as transparent as they usually are on what they are trying to achieve there, and if they want to tie it to a basket, for example, it might be useful to say that,” Bernanke told attendees at the Asian Financial Forum in Hong Kong.

The yuan has weakened around 6 per cent against the US dollar since the PBOC in August said it was adjusting how it sets the currency’s daily trading band mechanism, which hitherto had closely tracked the greenback higher against other major currencies. The yuan’s subsequent oscillations have been blamed for some of the volatility in regional equities with stocks off to their worst yearly start in four decades.

The man credited with rescuing the US economy from a recession said that China should still work towards a fully convertible currency and open capital account but needed to finish putting in place the right infrastructure.

“You have got to make sure you have good banking regulation, well functioning asset markets, bond markets, that you have mechanisms for trading currencies, and China’s making good progress on these things,” he said, at the same time drawing parallels to the discredited Washington Consensus model from the 1970s and 1980s when financial liberalisation was pushed on developing countries ahead of legal and regulatory infrastructure.