Published on Thu, Jul 29, 2010 at 08:14 | Source : Reuters
Updated at Thu, Jul 29, 2010 at 10:33
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IMF split in China yuan exchange rate debate
The IMF has softened its criticism of China's currency regime in recognition of Beijing's efforts to free up its exchange rate but the move showed a split among the Fund's member countries.
The IMF has softened its criticism of China's currency regime in recognition of Beijing's efforts to free up its exchange rate but the move showed a split among the Fund's member countries.
A summary of an annual review of China's policies described the yuan as "undervalued," a change from "substantially undervalued," which was used by International Monetary Fund chief Dominique Strauss-Kahn as recently as June.
The yuan has been a flashpoint in relations between China and old-line industrial powers, some of whom have complained that an undervalued yuan undercuts their exports.
Without elaborating, an IMF board statement on Wednesday said several countries on the 24-member executive board believed the Chinese currency was undervalued.
But others said a structural reduction in the balance of payments surplus was already unfolding thanks to steps taken to boost consumption, disagreeing with an assessment by IMF staff that the yuan was "substantially undervalued."
"This does reflect a softening in the board's position about the degree of adjustment that is needed in the Chinese exchange rate regime," said Eswar Prasad, a senior fellow at Washington's Brookings Institution and a former IMF official.
IMF economists calculated the yuan was undervalued somewhere between 5 and 27%, depending on methodologies used, Prasad said. A diplomat in Beijing confirmed the range.
