WASHINGTON - The head of the International Monetary Fund said on Wednesday the IMF believes that China sees itself technically ready to move to a more flexible exchange rate policy.

"We believe that they also believe they are technically ready for it, so now it's a political decision when to do it," IMF Managing Director Rodrigo Rato said in an interview with Reuters.

IMF officials recently returned from Beijing following annual economic consultations with the authorities. Their assessment is likely to be discussed by the IMF board within the next two weeks.

Rato repeated that the IMF had made clear to Beijing it was in China's own economic interest to loosen the yuan's close tie to the U.S. dollar. The authorities had not challenged that assertion, he added.

"Right now we see that the arguments of the Chinese authorities regarding their intention of macroeconomic stability with a certain exchange rate system is a valuable argument," Rato said.

"But at the same time, we are advising the Chinese government that it is in their own macroeconomic interest to move to a flexible exchange rate," he said.

Earlier on Wednesday, U.S. Federal Reserve Chairman Alan Greenspan warned that China faced "very serious" risk to its economy if it does not allow its currency, pegged to the U.S. dollar, to rise in value.

"The issue that seems to be on the table is when and what is the nature of the changes," Greenspan told the House Financial Services Committee.

The Fed chief repeated his view that the United States should not impose punitive tariffs to force China to revalue the yuan.

The United States has been leading a global drive to persuade Beijing to loosen the peg it maintains for its yuan currency around 8.28 per dollar, a practice that American manufacturers argue amounts to an unfair trade tactic that costs U.S. jobs.

The Bush administration believes that China's pegged currency is a roadblock in the way of normal adjustments to global imbalances and wants the policy loosened as soon as possible.

(For more biz stories, please visit Industry Updates)