China's central bank should set a "bottom line" of 25 percent for the yuan to depreciate, stop intervening to help preserve foreign exchange reserves, Yu Yongding, a former central bank adviser, was quoted as saying by financial magazine Caixin on Thursday.

Yu, an influential economist at a top government think tank, the Chinese Academy of Social Sciences, has been an advocate of a freer float for the yuan, which the central bank currently allows to a fluctuate 2 percent either side of a midpoint it sets before markets open each day.

"It is a very bad policy to let the yuan depreciate gradually and slowly towards a 'reasonable and balanced level' through sustained interventions," Yu, a former member of the central bank's Monetary Policy Committee, said in remarks reported on Caixin's website.

His comments follow a bout sustained pressure from capital outflows that have resulted in the yuan losing 6.5 percent against the dollar in 2016 - the biggest annual drop since 1994.

Despite recovering about 0.5 percent this month, the yuan was still hovering near its lowest in 8-1/2 years, trading around 6.9130 per dollar early Thursday.

Intervention in onshore and offshore markets have helped steady the currency, but Yu argued such action to stagger the yuan's decline.

"Abandoning intervention in the foreign exchange market will not only avoid the unnecessary depletion of foreign exchange reserves, but also greatly reduce the need for capital controls to curb capital outflows," Yu said, arguing that intervention only encouraged yuan-sellers.

China's reserves shrank by $320 billion in 2016, with $41 billion spent in December alone, to end the year at $3.011 trillion - near six year lows.

The People's Bank of China has repeatedly pledged to keep the yuan basically stable at a "reasonable and balanced level," while reforming the currency regime to make the yuan more flexible.

Yu's remarks feed into a debate among Chinese economists whether the authorities should stick to the current strategy or let the yuan float.

In an interview with Bloomberg News on Monday, PBOC advisor Fan Gang said the decline in China's foreign reserves is good news in the long-run and described the yuan as being at a "turning point" after possibly being overvalued in recent years.

Yu said the yuan has yet to reach its "reasonable and balanced level," or equilibrium, with the dollar broadly stronger and confidence in China's economy also a key factor.

He said market expectations for the yuan to depreciate further are unlikely to have changed, though the authorities have helped the yuan's recent recovery by making speculation against the currency prohibitively expensive, and by tightening some capital controls.

The central bank should find a "good opportunity" to declare a halt to currency intervention and only resume action if the yuan weakens beyond 25 percent, he said, without elaborating.

Earlier this week, Yu said China cannot let the yuan fall more than 25 percent.

"If the yuan depreciates too much, China can step up capital controls, we have a large amount of foreign exchange reserves, and ultimately, we have a bottom line, we cannot allow the yuan to depreciate more than 25 percent," Yu said according to a transcript posted on Chinese news portal Hexun.