CHINA should overcome the “irrational fear” of allowing the yuan to float freely, an influential government researcher said Tuesday, as markets seek clear policies in an increasingly complex financial environment.

Yu Yongding, a scholar at the China Academy of Social Sciences and former central bank adviser, made the comments amid a growing debate among Chinese economists about whether the yuan should be allowed to trade more freely.

With no clear direction from the central bank, traders have been closely scrutinizing the comments of influential academics such as Yu for a sign of any future policy movements.

“How the future exchange rate will go depends on central bank policy and I have no way of reading their minds, but I want to say that we should overcome the irrational fear of a free-floating yuan,” Yu was quoted as saying by Shanghai Securities News.

Yu’s comments notwithstanding, traders said it was unlikely that China would allow the exchange rate to float freely in the near future, noting that there was no clear consensus on what the equilibrium rate would be, for example.

Yu told a forum Monday that China has a huge trade surplus, US$3 trillion in foreign exchange reserves, the world’s fastest economic growth, and a strong government.

“[China] should be the country least afraid of a fluctuating exchange rate,” he was quoted as saying. (SD-Agencies)