On Tuesday, an official from the International Monetary Fund (IMF) said that the China currency is no longer undervalued.
David Lipton, the IMF’s 1st deputy managing director, said that although in the past undervaluation of the yuan was a critical factor that caused the major imbalance, the current assessment is that that past year’s considerable real effective appreciation has managed to bring the exchange rate to levels that are no longer undervalued.
After meeting with Chinese officials as part of an annual discussion on the Chinese economy in Beijing, Mr. Lipton said that China should make progress quickly in the area of bigger exchange rate flexibility & should try to achieve in the next 2-3 years, a floating exchange rate.
Lipton further added that more flexibility with some interventions limited to preventing disorderly market situations or excessive volatility, will be important to preventing exchange rates in the future moving from equilibrium.
The IMF had welcomed the bid from China to include into the organizations special reserve assets basket (Special Drawing Rights), the yuan. Currently, this basket contains the euro (EUR), U.S. dollar (USD), British pound (GBP) and the Japanese yen (JPY).
The expectations are for the IMF to make a decision this year on the re-evaluation of the basket’s composition.
China should look to raise their fiscal policy measures if the growth in the economy slips under 6.5%, but the IMF has expected 6.8% growth this year, said Mr. Lipton. The Chinese government’s official target is at 7% growth.
On its program set to reform the state sector, China has been moving too slowly, he said, further adding that the playing fields in Beijing need to be leveled between private and public sectors.