China’s currency remains “substantially” undervalued, the staff of the International Monetary Fund said on Wednesday, but the IMF’s executive board was divided on the issue.
The disagreement among the 24-member board weakens the pressure on China further to revalue the renminbi after it abandoned its peg to the dollar in June.
“The [renminbi] remains substantially below the level that’s consistent with medium-term fundamentals,” said Nigel Chalk, the IMF’s mission chief, on the conclusion of the fund’s annual consultation with China.
But the executive board – made up of experts appointed by individual IMF member countries or groups of countries – came to a much weaker assessment.
“Several directors agreed that the exchange rate is undervalued. However, a number of others disagreed with the staff’s assessment of the level of the exchange rate, noting that it is based on uncertain forecasts of the current account surplus,” they said.
China has blocked publication of the IMF’s full staff assessment for the last three years. It is not clear whether it will allow the report to be published this year.
In mid-June, China said it would increase the flexibility of its exchange rate, but since then the renminbi has only risen by 0.8 per cent against the dollar. The renminbi was trading at 6.78 to the dollar on Wednesday.
The US has long complained that China undervalues its currency in order to increase its exports. A group of US lawmakers, led by Senator Charles Schumer, have been pushing for a bill that would allow the government to impose duties on countries with exchange rates that were held artificially low.
Lael Brainard, the US Treasury’s top international official, repeated the Obama administration’s view that the renminbi was undervalued this week. She said that the US was watching how quickly the renminbi moved.
The rest of the IMF’s assessment was glowing. The executive board “commended China’s proactive and decisive policy response to the global economic crisis”, and said that “growth is expected to continue to be robust, while the inflation outlook appears benign”.
The IMF forecasts growth of 10.5 per cent for the Chinese economy this year and a current account surplus of 5 per cent of gross domestic product. “The policy challenge now is to calibrate the pace and sequencing of exit from the fiscal stimulus and credit expansion, while making further progress in reorienting the economy toward private consumption,” it said.
The IMF advised China to maintain its economic stimulus in 2010 but to phase it out gradually in 2011. It urged China to continue liberalising its financial system, to consider a property tax and to continue improvements in healthcare and pension coverage.
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