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Chinese currency no longer 'undervalued': IMF

The US Treasury said in a report last month to the Congress that the yuan remained "significantly undervalued", although it stopped short of branding China a currency manipulator, which would attract American sanctions on the world's second-largest economy.

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The IMF today said China's currency is "no longer undervalued," deflating repeated US assessment that the Yuan is deliberately devalued to secure trade advantages.

"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," the IMF said.

The global lender's assessment of the Yuan is a major endorsement of the Chinese stand that the country's currency has been gradually allowed to appreciate against the US dollar in the past few years.

The Yuan, also known as Renminbi, currently trades little over six per dollar.

"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," it said in a statement.

This will also require that the exchange rate adjusts with changes in fundamentals and appreciates in line with faster productivity growth in China, it said.

The US Treasury said in a report last month to the Congress that the yuan remained "significantly undervalued", although it stopped short of branding China a currency manipulator, which would attract American sanctions on the world's second-largest economy.

"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," the IMF said.

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," it said.

"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," it said.

"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'," it said.

About the Chinese economy, the IMF said "we project China to grow at 6.8% this year consistent with the authorities' growth target of around 7%, and well within the six and half to seven per cent range we consider appropriate for this year."

"Growth in China is moderating, a slowdown that is not a goal onto itself but a by-product of moving the economy away from the unsustainable growth pattern of the past decade," it said. 

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