IMF believes yuan still undervalued

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), has said that China’s yuan was still too low, despite a pledge by the People’s Bank of China to make its exchange rate more flexible.

The US has previously expressed dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Earlier this month, the World Bank joined the US and other commentators by saying that the yuan, which is also referred to as the renminbi, should be strengthened against other international currencies, in order to ease inflation and prevent the economy from overheating.

At this weekend’s G20 summit in Toronto, a draft said: “Emerging surplus economies will undertake reforms tailored to country circumstances to… enhance rate flexibility.”

Following the draft, China yesterday set the strongest yuan exchange rate in years – at 6.7890 to the dollar, slightly stronger than last Friday’s 6.7896.

It was the strongest level policymakers have set since China removed the currency peg in July 2005, when the yuan was allowed to rise in value by about one fifth.

US legislators and trade groups have since argued that the yuan is kept up to 40% below what its value should be against the US dollar.

However, Mr Strauss-Kahn of the IMF has praised China for relaxing the yan but said Beijing needs to do more.

He told reporters overnight: “We still believe, as we have a general view on this, that the renminbi is undervalued.”

Mr Strauss-Kahn was speaking ahead of the “Asia 21 Conference” next month, which will take place in the South Korean city of Daejeon. The conference will examine Asia’s growth model and economic management and the region’s role in international lending institutions.

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