SHANGHAI, June 7 (Reuters) - A former senior official at China’s foreign exchange regulator advocated the swift introduction of yuan futures trading to improve hedging in a currency market whose recent trend of yuan appreciation has been shaped by a “herd effect”. Writing in Yicai, a Chinese financial news outlet, over the weekend, Guan Tao, global chief economist at BOC International and the former head of the Balance of Payments department of the State Administration of Foreign Exchange (SAFE), described it as an “opportune moment” to launch yuan futures trading. Guan said it would help investors and businesses “better manage FX risk while improving the efficiency of supervision”. A working paper published in April by researchers from the People’s Bank of China had also called for the creation of a yuan futures market to help investors better hedge against currency risks. China has already introduced basic foreign exchange derivatives, including forwards, currency swaps and options. “Launching yuan futures trading may help us grasp a weapon to deal with various forms of currency attacks, improve risk prevention and control and response capabilities in an open market, and better implement financial security development strategies,” Guan said. He noted recent strength in the yuan has fostered a procyclical “herd effect”, whereby the currency’s appreciation is becoming fueled by self-fulfilling expectations. Chinese yuan has gained about 12% against the dollar since May 2020 and has hit its highest levels in more than three years. A host of Chinese policymakers have warned market participants recently against betting on one-sided moves in the currency, and the People’s Bank of China last week raised the reserve requirement ratio on foreign exchange deposits for the first time in 14 years. Against the backdrop of recent higher volatility in the yuan, several banking sources told Reuters that they had been advised by the FX regulator to guide their corporate clients to hedge FX exposures and keep their stance “risk neutral”. Policy sources told Reuters that China is likely to take incremental steps to slow the yuan’s gains in order to deter speculators and help exporters, while shunning drastic measures that could undermine its goal to liberalise the currency and boost the yuan’s global clout. Reporting by Winni Zhou and Andrew Galbraith; Editing by Simon Cameron-Moore Our Standards: The Thomson Reuters Trust Principles.