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ARCHIVES 2015, 2014

IMF Staff Mission to China:

Currency no longer undervalued, credible candidate to SDR basket


150526 - A mission from the International Monetary Fund (IMF), led by Mr. Markus Rodlauer, Deputy Director of the Asia and Pacific Department, visited Beijing, Shanghai and Taiyuan from May 14 to 27 to conduct discussions on the annual Article IV review of the Chinese economy. The mission held “highly constructive and candid discussions” with senior officials from the government, the People’s Bank of China, private sector representatives, and academics to exchange views on prospects for the economy, reforms and challenges ahead.

At the end of the visit, the mission made the following remarks, concerning the external side of the Chinese economy and especially the role of the Yuan, confirming the currency is no longer considered as undervalued and the possibility of its inclusion in the SDR basket.

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves. Nevertheless, staff projections for 2015 suggest that China’s external position is still moderately stronger than consistent with medium-term fundamentals and desirable policies. There are several factors influencing a country’s external position, with the exchange rate being one of them. While undervaluation of the Renminbi 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. However, the still-too-strong external position highlights the need for other policy reforms—which are indeed part of the authorities’ agenda—to reduce excess savings and achieve sustained external balance. This will also require that, going forward, the exchange rate adjusts with changes in fundamentals and, for example, appreciates in line with faster productivity growth in China (relative to its trading partners). On the exchange rate system, we urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China’s that strives for market-based pricing and is integrating rapidly in global financial markets. 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. We believe that China should aim to achieve an effectively floating exchange rate within 2–3 years.

“In recent years, China has played an increasingly important role in driving global growth, contributing to global economic and financial stability, and helping to improve the international monetary system. As part of the ongoing review of the Special Drawing Rights (SDR) basket at the IMF, the Chinese authorities have stated publicly their interest in including the Renminbi in the SDR basket. We welcome and share this objective and will work closely with the Chinese authorities in this regard. As the Managing Director of the IMF has said, RMB inclusion is not a matter of ‘if’ but ‘when’.

See Webcast of the press briefing

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