17 October 2019
While the renminbi used to be overvalued, that is no longer so, the IMF says. Photo: Reuters
While the renminbi used to be overvalued, that is no longer so, the IMF says. Photo: Reuters

Renminbi no longer undervalued: IMF

China’s currency “is no longer undervalued”, the International Monetary Fund (IMF) said.

The United States has long suggested that China has manipulated the value of the renminbi to boost its exports.

Undervaluation has been a problem in the past, the IMF acknowledged in a statement, but it said this is no longer the case, BBC News reported.

Substantial “appreciation over the past year has brought the exchange rate to a level that is no longer undervalued”, the IMF said.

It said China should focus on creating full exchange rate flexibility so that the value of the renminbi adjusts as the country grows.

“We urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China’s that strives for market-based pricing and is integrating rapidly in global financial markets,” the IMF said.

It said China should aim to achieve a floating exchange rate within the next two or three years.

“Greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility, will also be key to prevent the exchange rate from moving away from equilibrium in the future,” the IMF said.

Its comments came after a two-week visit by one of its delegations to Beijing, Shanghai and Taiyuan, the capital of Shanxi province.

The delegation also commented on China’s slowing economic growth, which it said was “a by-product of moving the economy away from the unsustainable growth pattern of the past decade”.

It expects China’s economy to grow 6.8 percent this year, almost matching the government’s target of 7 percent, with growth then expected to slow to 6.25 percent next year.

“China is transitioning to a new normal, aimed at safer and higher-quality — even if a bit slower — growth,” the IMF said.

The team also said it is only a matter of time before the renminbi is included in the IMF’s Special Drawing Rights (SDR) basket, a form of international money that is defined as a weighted average of various convertible currencies, including the US dollar, euro, British pound and Japanese yen.

Tommy Ong, executive director of treasury and markets at DBS Bank (Hong Kong) Ltd., said he expected the renminbi to float soon so that it can join the SDR.

A floating band may be adopted to leave room for intervention if need be amid changes in fundamentals, Ong was quoted as saying in a Hong Kong Economic Journal report Wednesday.

The Chinese currency has risen over 33 percent since the country entered the World Trade Organization in 2001.

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