IMF official: Chinese yuan no longer undervalued

China’s currency is no longer undervalued, a senior official of the International Monetary Fund said Tuesday.

“While undervaluation of the renminbi (yuan) was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued,” IMF first deputy managing director David Lipton said.

Speaking to reporters in Beijing after meeting with Chinese officials as part of annual discussions on China’s economy, he said China should make quick progress in the area of greater exchange-rate flexibility and try to achieve a floating exchange-rate system in two to 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,” he said.

Mr. Lipton told reporters that the IMF welcomes China’s bid to have the yuan included in the Special Drawing Rights, the organization’s basket of special reserve assets, which is currently made up of the dollar, euro, Japanese yen and the British pound.

The IMF is expected to make a decision on a re-evaluation of the composition of the basket this year.

Mr. Lipton also said that China should step up fiscal policy measures if economic growth slips below 6.5%, although the IMF expects growth to come in at 6.8% this year. The official Chinese government target is for 7% growth.

China has moved too slowly on its program to reform the state sector, he said, adding that Beijing needs to level the playing field between the public and private sectors.

Market Watch

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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