Published on Wed, Jul 28, 2010 at 11:19 | Source : Reuters
Updated at Wed, Jul 28, 2010 at 11:29
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IMF gives ground on yuan exchange rate debate
The International Monetary Fund has chosen not to call the yuan "substantially" undervalued, a move that recognises China's efforts to free up its exchange rate and avoids friction with an increasingly influential shareholder.
The IMF's choice of words is the second qualified recognition this month of the progress China is making in liberalising its exchange rate.
On July 8, the administration of US President Barack Obama said the yuan remained undervalued but declined to designate China a currency manipulator.
That finding angered US lawmakers, many of whom argue that China is unfairly holding down its currency to favour its exporters and are threatening punitive action.
But a Chinese academic rejected US criticism and said the yuan, also known as the renminbi, was not too cheap.
"The US trade deficit with China has nothing to do with the yuan's exchange rate," He Weiwen, a professor at the University of International Business and Economics, wrote in the People's Daily on Wednesday.
The IMF said the scrapping of the dollar peg would increase the central bank's flexibility to tighten monetary conditions.
A stronger yuan rate would also be good for the rebalancing of the domestic and global economies by shifting China's growth from exports and investment to private consumption, it said.
On other issues, the board supported a gradual phase-out of China's massive fiscal stimulus in 2011, provided the current trajectory for the economy the IMF expects continued robust growth with benign inflation is maintained.
Directors commended the slower pace of money growth that China is targeting this year but urged it to raise interest rates. Unlike many other Asian countries, including India on Tuesday, China has not increased borrowing costs in 2010.
