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Experts: IMF report proves China not manipulating yuan

By Chen Jia, Zhou Lanxu in Beijing and Dong Leshuo in Washington | | Updated: 2019-08-10 19:32
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Photo taken on Aug 9, 2019 shows a view of the headquarters of the International Monetary Fund (IMF) in Washington DC, the United States. [Photo/Xinhua]

The latest report by International Monetary Fund (IMF) concluded that the exchange rate of the Chinese yuan was "broadly in line with medium-term fundamentals", and the Chinese monetary authority barely intervened in the foreign exchange market.

The report, released late Friday in Washington, was a blow to the labeling of China as "a currency manipulator" by the US administration, experts said.

The value of the Chinese currency and the country's external position in 2018 were "broadly in line with the level consistent with medium-term fundamentals and desirable policies," the report said, citing that China's current account surplus fell by around 1 percentage point to 0.4 percent of GDP in 2018 and is projected to remain contained at 0.5 percent of GDP in 2019.

Estimates showed that the People's Bank of China, the country's central bank, has had "little FX intervention", said the report, which is based on IMF's latest Article IV consultation with China, a review of the Chinese economy that concluded on July 31.

The IMF's conclusion came in just four days after the US Treasury officially labeled China as a "currency manipulator" on Monday. The Chinese yuan weakened to beyond 7 per dollar for the first time in more than a decade earlier this week.

"The IMF conclusion is objective and reflected that the renminbi was assessed to be broadly in line with medium-term fundamentals. The result kept pace with what it said in July," said Zhang Xiaohui, a senior researcher of the China Finance 40 Forum (CF40), and former assistant governor of the PBOC.

What the IMF concluded is a just decision, reflecting that the US labeling simply doesn't hold water, according to Yu Yongding, a senior economist at the Chinese Academy of Social Sciences and a consultant of CF40.

The report provided authentic evidence that, instead of artificially depreciating the yuan for trade advantages as the US administration alleged, China actually has been committed to keeping the yuan generally stable at an equilibrium and adaptive level, said Liu Chunsheng, an associate professor with the Central University of Finance and Economics, agreeing with Yu.

A pedestrian walks past the headquarters of the International Monetary Fund (IMF) in Washington DC, the United States, on Aug 9, 2019. [Photo/Xinhua]

Despite that the yuan depreciated against the dollar relatively rapidly from mid-June to early August last year, the Chinese currency was "broadly stable" against a basket of currencies, the report said.

It added that the Chinese monetary authority took measures, including reintroducing the counter-cyclical adjustment factor, to counter depreciation pressure during that period.

The recent depreciation of the yuan against the dollar was due to normal market reaction, as investors' concerns over trade tensions were further fueled by Washington's threat to slap 10 percent tariffs on an additional $300 billion worth of Chinese goods from Sept 1, Liu added.

On Friday, the central parity rate of the onshore yuan, from which the currency is allowed to rise or fall by 2 percent per trading day, was 7.0136 against the dollar. The offshore yuan was traded at above 7.09 per dollar on Saturday, recovering from the weakest level of 7.1399 seen on Tuesday.

It was market forces that pushed the recent depreciation of the yuan against the greenback, and "it is difficult to argue that a failure to intervene against those market forces constitutes currency manipulation," said Phil Levy, chief economist at Flexport, a San Francisco-based logistics company.

Chen Yuan, chairman of CF40 Executive Council and former vice-chairman of the Chinese People's Political Consultative Conference, said that the report showed that "IMF doesn't agree with the US (labeling)" and cautioned the need for China to prepare for long-term disputes, including potential ones in the financial field.

Chen suggested increasing yuan-denominated settlements in global commodity trade and accelerating the renminbi internationalization, to reduce reliance on the dollar.

Echoing Chen's view, Zhou Xiaochuan, chairman of the China Institute of Finance and former central bank governor, said at the CF40 forum on Saturday that China may have to take countermeasures in face of any tariff or non-tariff barriers imposed against the country.

According to IMF's press release on Friday, the IMF Executive Directors concurred that greater exchange rate flexibility and deeper and better functioning foreign exchange markets would help China's financial system be more capable of dealing with capital flow volatility.

"At about US$3.2 trillion, China's foreign currency reserves remain more than adequate to allow a continued transition to a floating exchange rate," the IMF report said.

Yu from the CASS agreed, and he suggested that the Chinese monetary authority continue the foreign exchange reform, towards a more flexible and market-oriented regime.

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