IMF Official Says Chinese Yuan No Longer Undervalued

26-May (Wall Street Journal) — China’s currency is no longer undervalued given recent appreciation, but the government should pick up the pace in loosening controls on the exchange rate, a senior International Monetary Fund official said Tuesday.

Speaking at the conclusion of an annual review of the Chinese economy, IMF First Deputy Managing Director David Lipton said along with the exchange rate, China should further address economic imbalances, promoting consumption and reducing reliance on investment-fueled growth.

…Mr. Lipton said the currency, the yuan, had appreciated against most other currencies in recent months, helping China to reduce its “very large” current- account surplus and slow its accumulation of foreign reserves. Those were all signs that the yuan is no longer undervalued, he said. The Wall Street Journal reported earlier this month that the IMF was on the verge of making such a declaration after years of criticism of Beijing’s management of the currency. The U.S. has also complained for years that Beijing has kept the yuan undervalued, giving China’s exporters an unfair price advantage.

…The IMF welcomes China’s bid to have the yuan included in the SDR basket, Mr. Lipton said. The IMF is expected to make an evaluation of the composition of the SDR this year.

While all of the SDR currencies are freely convertible, the yuan isn’t. The IMF’s criteria are less definite, requiring that a currency be “freely usable.” Given that, the U.S. and other major IMF shareholders have significant discretion on whether or not to include the yuan this year, some economists said. “It’s not straightforward from the technical aspect, it’s more political now,” said Standard Chartered economist Shuang Ding. “A lot depends on Washington.”

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