China on Wednesday issued a pointed warning to the International Monetary Fund not to back US pressure for a faster appreciation of the renminbi in a planned review of global exchange rates.
The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries.
Without directly naming the US, the PBoC said the IMF should step up supervision of member states issuing “major reserve currencies that play a pivotal role on the global systemic stability”.
The IMF announced this week a decision on a new framework. It will expand its coverage of currencies to “all major emerging market currencies”.
China is coming under increasing pressure from the US and Europe over its swelling trade surplus, which many of its critics claim is the result of a deliberately undervaluedcurrency.
US senators recently introduced a bill that would see disputes over exchange rates sent to the World Trade Organisation by treating them as unfair export subsidies. The bill did not specifically name China, but the weak renminbi is the most immediate target of the legislation.
China, which introduced a tightly managed float for the renminbi in mid-2005, has committed itself to making its currency more flexible, but insists it needs to be done gradually to ensure the stability of its economy.
In its statement, the PBoC acknowledged exchange rates could help “ease external imbalances”, but only as part of a much broader set of equally important policy tools.
“An unregulated and massive adjustment will not only worsen external instability, but also influence the sustainability of domestic economic growth, and therefore global growth and the stability of international financial markets,” the PBoC said.
Although China is the world’s fourth largest economy and is on track to become the biggest trading nation, the PBoC statement stressed its participation in the IMF as a “developing country”. The statement expressed reservations about the IMF review because “it fails to reflect opinions of developing countries”.
The IMF said the PBoC’s call for equal treatment of all countries and due regard to countries’ circumstances “is fully reflected in the decision that has been approved and the IMF and its staff are dedicated to implementing it in this spirit”.
Meanwhile, Hank Paulson, US Treasury secretary, hailed the IMF surveillance reform in testimony to Congress on Wednesday, saying it will “permit firmer surveillance in areas such as insufficiently flexible exchange rate regimes”.
He said the US would keep up the pressure on the IMF over its surveillance work, warning “nothing is more important for the relevance of the IMF than rigorous execution of its most fundamental responsibility”.
Mr Paulson – who has emphasised the bilateral channel of diplomacy with China through the special economic dialogue he set up – said “firm, multilateral based exchange rate surveillance has the potential to be a strong complement to bilateral diplomacy”.
Additional reporting by Krishna Guha in Washington