Stable yuan to help internationalization moves：Economist

A more stable, not flexible, yuan would help China's effort to internationalize the currency while foreign pressure on faster yuan appreciation is "counter-productive", Ronald McKinnon, professor of international economics at Stanford University, said on Thursday.

The Chinese currency should be included in the special drawing rights (SDR) basket of the International Monetary Fund next year as the country's economic clout rises, said Nobel laureate Robert Mundell.

China should continue to encourage internationalization of the yuan, McKinnon said in a paper presented at the Changchun High Level International Financial Conference.

"With a stable yuan/dollar rate, foreigners would be more willing to borrow in yuan from Chinese banks and even be willing to issue yuan-denominated bonds in Shanghai."

"But they would not do that if they think the yuan is going to appreciate," McKinnon told China Daily on the sidelines of the meeting. "It'll be crazy for them if they borrow yuan before it jumps up" because they will pay back more than they borrow.

He also said the yuan's exchange rate is not the cause of the Sino-US trade gap, a reason often used by US politicians and media outlets for criticizing China.

McKinnon called that an "economic fallacy". "The Americans think that as the yuan rises, the American trade deficit will diminish; but that's wrong."

If the yuan were to appreciate sharply against the dollar, potential investors would see China as a more expensive place to invest, he said.