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Washington -The head of the International Monetary Fund said Monday that China's yuan was still undervalued, despite its central bank's pledge to make its exchange rate more flexible.
But IMF managing director Dominique Strauss-Kahn warned that even a sharp revaluation of the yuan, also known as the renminbi, would fail to correct the imbalances that impair the global economy.
"We still believe, as we have a general view on this, that the renminbi is undervalued," Strauss-Kahn told reporters.
China unpegged its currency to the dollar in 2005 and earlier this month pledged to let it trade more freely against the dollar, though it ruled out any dramatic moves.
President Barack Obama on Sunday urged China to "be serious" about its promise. US lawmakers have threatened retaliation against China, accusing it of deliberately keeping its yuan low to fuel exports of cheap manufactured goods.
But Strauss-Kahn said he believed China was mostly responding to its own domestic strategy to encourage more growth from domestic demand instead of exports.
"Even a very strong revaluation won't solve all the imbalances - far from that," he said.
"Of course the revaluation of the renminbi goes in the right direction, and we're still pushing for this, but there are a lot of other source of imbalances which will not be addressed only by changing the currency," he said.
Strauss-Kahn said it was too early for the yuan to become part of the reserve currency used by the IMF, known as Special Drawing Rights (SDR).
The international lender now determines the currency with a basket of the US dollar, euro, Japanese yen and British pound sterling.
"I think it will be difficult to include the renminbi before the renminbi is really at a market price or one way or another a floating currency," he said.
"But the sooner the better because as time goes by, there are more and more reasons to include other currencies in the SDR basket," he said.
Strauss-Kahn was speaking ahead of a July 12-13 conference in the South Korean city of Daejeon which aims to study Asia's growth model and economic management and the region's role in international lending institutions.
Strauss-Kahn hoped the conference would help improve the image of the IMF in Asia, where some in South Korea and Southeast Asia remain resentful over lender's role in the 1997 financial crisis.
The IMF had pressed governments to cut back on spending and allow insolvent banks to fail to halt the crisis, which was triggered by a collapse of the Thai baht and spiraled across the continent.
"Obviously the way the IMF has worked in the Asian crisis has been very badly received by Asian countries," Strauss-Kahn said.
"Maybe they were wrong, or at least they were a bit unfair, because the mission of the IMF was to contain the crisis and clean up the financial sector," he said, pointing out that banks in affected countries weathered the 2008 global shock.
But Strauss-Kahn, a French socialist, acknowledged that many Asians had understandable concerns about the impact that austerity packages had on ordinary people.
He said the IMF was conscious of the backlash a decade ago as it negotiated more recent bailouts for countries such as Hungary and Pakistan.
"Looking backward, it appears that probably it could have been done another way and we drew the lesson from this," he said.
- AFP
