The Ministry of Finance and the People's Bank of China (PBoC), or the central bank, need to coordinate on the management of foreign exchange reserves and on the yuan exchange rate, according to research conducted by the National Development and Reform Commission (NDRC).

In a report in the official Shanghai Securities Journal, the NDRC proposed that the ministry issue special bonds to raise yuan funds and then make these funds available to the central bank for exchange rate intervention purposes.

'In this way the yuan liabilities and foreign exchange reserves move strictly in accordance... and therefore break the positive correlation between liquidity and foreign exchange reserve growth,' the NDRC said.

Foreign exchange received by the Ministry of Finance should then be managed by a separate entity, such as the soon-to-be-established foreign exchange reserve management agency, which will absorb the central bank investment arm, Central Huijin.

The NDRC also cautioned against shifting too much dollar-denominated assets to other currencies, citing the risk of market panic.

It added the central bank should discourage expectations of yuan appreciation to deter hot money from pouring into the country, and also adjust China's interest rate to discourage carry trade.