China’s Yu Yongding (L) and other economists pose outside the Elysee Palace in Paris, France, after a meeting in January 6, 2011.

The yuan drive is partly due to Beijing’s frustration with reliance on the U.S. dollar as a global currency in the aftermath of the U.S. financial crisis. Since it began on an experimental basis in 2009, yuan trade settlement has grown rapidly, rising more than 20-fold from a year earlier to reach 7% of China’s total foreign trade in the first quarter. But dollar dependence is proving a hard habit to kick.

Yu Yongding, a former central bank adviser turned strident central bank critic, is the latest to raise questions about the wisdom of rapid yuan internationalization. Rather than reducing China’s accumulation of foreign exchange reserves, yuan trade settlement is actually having the opposite impact, and the process needs to managed carefully, Yu wrote in an essay published on Monday by the Chinese Academy of Social Sciences.

This perverse state of affairs arises because people outside of China are keen to accept yuan as payment, believing it will appreciate. For the same reason, they are less keen to pay for goods with yuan — and don’t have much of it on hand in the first place. Analysts estimate around 80% of current yuan trade settlement is to pay for imports. As more and more imports are paid for in yuan rather than dollars or euros, less foreign currency is drained from the Chinese economy, leaving Beijing at the end of the day holding more foreign currency reserves than it otherwise would. Mark Williams, an economist at Capital Economics, estimates this effect contributed around $40 billion to China’s foreign currency stockpile – equal to roughly 20% of growth in the reserves– in the first quarter.

That is a particularly vexing outcome for Mr. Yu, who has emerged in recent years as one of the world’s biggest critics of U.S. Treasury bonds, an asset in which a large proportion of China’s foreign exchange reserves are invested. In a separate essay last month, Mr. Yu denounced U.S. Treasury bonds as a giant ponzi scheme supported by Federal Reserve purchases. In another, he said the Fed’s policy of quantitative easing may lead to hyperinflation in the U.S. and major losses for China’s Treasury holdings.

“While internationalization of the (yuan) is necessary and inevitable, it should be guided by market principles and pursued in a cautious manner,” Mr. Yu wrote in Monday’s essay. “In any case, the (yuan’s) path to becoming a truly international currency promises to be a bumpy one.”

What’s more, he added, yuan internationalization risks increasing inflows of speculative hot money, a headache for Chinese policymakers as it opens a new hole in China’s wall of capital controls.

Chinese monetary authorities have already begun to distinguish between legitimate demand for yuan-denominated assets and speculative demand, Mr. Yu wrote. The pace of yuan internationalization could therefore “become more measured than international investors have expected.”