IMF managing director Dominique Strauss-Kahn said on Monday that the yuan was still undervalued, despite its central bank’s pledge to make its exchange rate more flexible.
However, he warned that a sharp revaluation of the yuan would fail to correct the imbalances that impair the global economy.
“We still believe, as we have a general view on this, that the renminbi [yuan] is undervalued,” Strauss-Kahn told reporters.
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China unpegged its currency to the US dollar in 2005 and earlier this month pledged to let it trade more freely against the dollar, though it ruled out any dramatic moves.
US President Barack Obama on Sunday urged China to “be serious” about its promise. US lawmakers have threatened retaliation against China, accusing it of deliberately keeping the yuan low to fuel exports of cheap manufactured goods.
But Strauss-Kahn said he believed China was mostly responding to its own domestic strategy to encourage growth from domestic demand instead of exports.
“Even a very strong revaluation won’t solve all the imbalances — far from that,” he said.
“Of course the revaluation of the renminbi goes in the right direction, and we’re still pushing for this, but there are a lot of other source of imbalances which will not be addressed only by changing the currency,” he said.
SDR
Strauss-Kahn said it was too early for the yuan to become part of the reserve currency used by the IMF, known as Special Drawing Rights (SDR).
The international lender now determines the currency with a basket of the US dollar, euro, yen and pound.
“I think it will be difficult to include the renminbi before the renminbi is really at a market price or one way or another a floating currency,” he said.
“But the sooner the better because as time goes by, there are more and more reasons to include other currencies in the SDR basket,” he said.
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