Two-way fluctuation essential for RMB exchange rate reform

"China's worry is not that there would not be enough money coming into China. China's worry in my view is there's too much money coming in, which means it should actually be more flexible in letting money leave China," Huang said.

China's central bank is under pressure to try to sterilize these capital inflows pushed by ultra-loose monetary policies in the US and Europe, he said.

Huang added that even though China's economic growth rate slows to 7 percent, China will continue to be relatively attractive for incoming capital because it is still higher than that of the West and other Asian countries.

So it is far better for Chinese households and companies to invest overseas, such as buying foreign stocks and properties, to earn more than investing in US treasury bonds by China's foreign exchange reserves, he said.

Renminbi Internationalization in east Asia

In a practical sense, Huang believed that the internationalization of renminbi could logically begin within the East Asian region.

On one hand, China has desire to pay renminbi to East Asian countries as it runs significant trade deficits with them, and these countries are also willing to hold renminbi that is relatively stable.

On the other hand, East Asian countries can benefit from greater use of renminbi because China is so central to the so-called East Asia Production Sharing Network. Products like computers and iPhones are based in parts and components in other East Asian countries, assembled in China and then shipped to the West.

"If the renminbi becomes an international currency within East Asia, I think it's a safe way to learn about its merits... You can allow the renminbi to flow more freely. After all there're major renminbi markets already existing in East Asia," Huang said. "I think that will be a nice first step in terms of internationalizing the renminbi."

He said that if China's economy continues to grow at 6-8 percent a year for the remainder of this decade, its fiscal position will be reasonably solid and financial situation will be sound.

"I don't see many risks in terms of the internationalization of renminbi," Huang said.