BEIJING, Oct 13 (Reuters) - Beijing must be bold and let the yuan rise smartly against the dollar if the U.S. currency weakens, even though Chinese exports are already under pressure, a local banking regulator said.
A stronger exchange rate was needed to prevent a further accumulation of foreign exchange reserves, which have soared in recent years, according to Yu Xuejun, director of the China Banking Regulatory Commission in the coastal province of Jiangsu.
"China should have the courage to let the yuan rise significantly against the dollar to maintain a balanced, market-based exchange rate," Yu wrote in Finance Series, a supplement of Caijing magazine.
Although the International Monetary Fund among others believes the yuan is undervalued, Yu's views do not reflect official Chinese policy.
Yi Gang, a vice central bank governor, said earlier this month that China would stick to its current exchange rate policy and aim to maintain market stability.
China has in effect re-pegged the yuan around 6.83 per dollar since the financial crisis intensified in the middle of 2008 to help its export industries and to cement financial stability.
Jiangsu is an important exporting province, but Yu said keeping the yuan undervalued was not a solution for weakness in shipments abroad, which he attributed mainly to reduced demand in developed economies.
"If the yuan becomes undervalued, as it used to be, hot money will pour into China, put greater (upward) pressure on China's foreign exchange reserves and worsen China's economic imbalances," Yu warned.
After barely rising in the first quarter, China's foreign exchange reserves piled up quickly again in the second quarter with a record monthly rise in May of $80.6 billion.
China had a total $2.13 trillion in reserves at the end of June. Third-quarter figures are due for release this week. (Reporting by Zhou Xin and Alan Wheatley; Editing by Ken Wills)