In a rare criticism, a researcher of a state think-tank accused China's central bank of playing "dangerous game" of selling the reserves to defend weakening yuan amid rapid decline in the world's largest forex reserves that shrank by USD 1 trillion.
"China's central bank, the People's Bank of China (PBOC), is playing a dangerous game using the precious foreign reserves to defend the yuan as it could leave the country defenceless in an increasingly volatile world," Zhang Ming, senior fellow at the Institute of World Economics and Politics under the state-run Chinese Academy of Social Sciences, said.
Instead PBOC should take a hands-off approach to the currency and focus on safeguarding foreign exchange reserves, he said.
"Forex reserves are valuable assets that (China) can use at critical times. It's a pity that they are being sold heavily in the market.It should be the last resort," Zhang has been quoted by the Hong Kong based South China Morning Post as saying.
Zhang said the PBOC was betting on "the weakening of the US dollar and a domestic economic rebound".
His criticism, which is rare in China's tightly controlled governing system came as forex reserves shrunk by almost a USD 1 trillion since June 2014 as the central bank has sought to prevent a large fall in the yuan against the US dollar.
As per the recent official figures the reserves stands at about USD 3.05 trillion.
Zhang's call for Beijing to reverse the policy and abandon its heavy intervention in the foreign exchange market is gaining traction among researchers, the report said.
China's yuan was devalued by about 8 percent last year.
It is currently trading around 6.80 to a dollar and expected to decline further by about five per cent.
The criticism may add gist to US President Donald Trump's criticism during his campaign that China is manipulating its currency.
Zhang Bin, another researcher at the Chinese Academy of Social Sciences, agreed that Beijing should free up controls on the yuan's exchange rate by reducing government intervention in the market.
"Floatation does not mean a large devaluation," he said.
"Actually, a one-off devaluation [of the yuan] doesn't need to be big, and [the currency] may rebound as well. By doing this it will help the domestic economy," he said.
Tsinghua University professor Zhu Ning also said earlier that Beijing should let the market determine the yuan's exchange rate.
The prospects of this approach becoming a policy option appear to be rising, especially with the Zhang Ming said the real loss in reserves may be higher than USD 1 trillion because there were ways the central bank could cover some of its interventions in the market, including borrowing dollars, by using its overseas assets as collateral or selling dollars in forward markets.
But he added that there was no evidence to prove this had happened. If PBOC had carried out these actions it was because it was pinning its hopes on the dollar finally weakening, Zhang said.
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