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 16/11/2009
[Finance]
Strauss-Kahn Says China Currency Still Undervalued
It is in the interest of the Chinese people for the yuan to appreciate, Strauss-Kahn said today at an event in Beijing. The appreciation of the yuan is part of the “package of necessary reforms” for China’s economy, he said in an earlier speech in Beijing today.
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By Bloomberg News
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said China’s currency remains undervalued.
It is in the interest of the Chinese people for the yuan to appreciate, Strauss-Kahn said today at an event in Beijing. The appreciation of the yuan is part of the “package of necessary reforms” for China’s economy, he said in an earlier speech in Beijing today. Strauss-Kahn also urged efforts to create a new global currency, saying that one based on special drawing rights could be possible in 10 years. China’s Commerce Ministry today rebuffed calls for the yuan to strengthen. Asking for currencies such as the yuan to appreciate as the dollar weakens “is not conducive to a global economic recovery and is not fair,” ministry spokesman Yao Jian said at a press briefing in Beijing. Yuan forwards declined for the first time in four days as the comments eased speculation that China was preparing to allow appreciation after a central bank report last week dropped a pledge to keep the currency “stable.” The government has held the exchange rate at 6.83 per dollar since July last year, after allowing a 21 percent gain in the previous three years, seeking to shield exporters from slumping demand.
Trading Band
The Chinese government may allow a 3 percent-to-4 percent increase in the yuan next year and widen the trading band of the currency against the dollar, said Shen Minggao, Hong Kong-based chief economist for Greater China at Citigroup Inc. The yuan’s trading band was changed to 0.5 percent in May 2007 from 0.3 percent.
A stronger yuan would help increase the purchasing power of households, raise the labor share of income and provide the right incentives to “reorient investment,” Strauss-Kahn said.
China still needs to do more to reduce its economy’s dependence on investment and exports for growth, the IMF chief said, while praising initiatives to spend more on health care and to reform rural pensions.
“More can be done to secure a lasting, structural shift toward consumption, by expanding the scope of social policies, moving ahead on financial sector reform, and undertaking corporate governance reforms,” he said. “A stronger currency is part of the package of necessary reforms.”
Even so, China needs to slow the “very rapid pace of loan growth, which raises risks of overinvestment, overcapacity and ultimately bad loans,” Strauss-Kahn said. He reaffirmed a forecast for China’s economy to grow 8.5 percent this year and 9 percent in 2010.
To contact the reporter on this story: Kevin Hamlin in Beijing |
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