If the United States falls into recession, Washington is likely to issue dollars to stimulate the economy, which in turn may cause the currency to depreciate, Ba Shusong writes in the Monday's China Securities Journal.

Such a move would put the current dollar-centered exchange rate system under unprecedented pressure. Therefore, the exchange rate mechanism of the RMB should be made more flexible, and direct links to the US dollar should be avoided; Ba said it is also crucial to pay attention to the effects of a fall in the US dollar on the Hong Kong dollar.

China should draw lessons from the financial turbulence caused by the subprime lending crisis when developing its own financial derivatives market, including stock index futures, but the crisis should be considered as a warning signal rather a red light on the road to reform.

Ba said China should also learn from the American experience in implementing market supervision, and should carefully prepare the process of designing financial products, defining market regulations, and planning investor training.

Ba is a deputy director of the Institute of Finance in the Development Research Center, a think tank directly under the State Council.

For more details, please read the complete story in Chinese:

(http://paper.cs.com.cn/html/2008-10/06/content_18194915.htm)

(China.org.cn by Fan Junmei, October 6, 2008)