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Yuan to have bigger global role, says Yam

(China Daily/Agencies)
Updated: 2009-12-23 08:06

Former Hong Kong Monetary Authority chief Joseph Yam has joined the mainland's central bank as an advisor and said yesterday that the yuan can become the third pillar of the global monetary system as deteriorating public finances erode confidence in the dollar and the euro.

Yam, 61, was appointed as the executive vice-president of the China Society for Finance and Banking, a think tank under the People's Bank of China.

"Large budget deficits and public debt and structural problems in the financial system mean that the two pillars are not resting on sound foundations," he said at a financial forum yesterday in Beijing.

"There is a need for a third currency to serve as a third pillar, which would also give an opportunity for the two weak pillars to heal," he said.

Yam forecast China's economy will in 20 years rival the United States and Europe in terms of size and this will bolster the yuan's attraction as a reserve currency.

He also noted that the restrictions on the yuan should be relaxed in the Hong Kong Special Administrative Region as it was the "ideal testing ground" to promote yuan usage.

Yam, who retired in October, said that in his new role, he wanted to help strengthen the financial relationship between Hong Kong and the mainland and promote globalization of the yuan. He said Hong Kong should play a central role in expanding the use of the yuan.

The mainland this year allowed 365 companies in Shanghai municipality and Guangdong province to use yuan in cross-border trade with Hong Kong and members of the Association of Southeast Asian Nations from July 2. The central government in October sold 6 billion yuan ($878.64 million) worth of bonds in Hong Kong to help elevate the international status of the currency.

Yam's appointment is "a natural thing, as many others who joined were high-level officials or academics", said Jian Chang, a Hong Kong-based economist at Barclays Capital Asia Ltd. "The society is a platform to get people together and allow them to continue discussions, but clearly it's not a policy-making body."

Yam steered Hong Kong through the Asian financial crisis in 1997, fending off an attack by speculators on the currency peg. After starting his career as a government statistician in 1971, he became the highest paid central banker in the world, according to Central Banking Publications last year.

In 2008, Yam received $1.5 million, compared with US Federal Reserve Chairman Ben Bernanke's $191,300 and Bank of England Governor Mervyn King's $400,000 in 2007.