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IMF Says Yuan Is Fairly Valued Ahead of U.S. Currency Manipulation Report

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IMF Says Yuan Is Fairly Valued Ahead of U.S. Currency Manipulation Report

  • Yuan broadly in line with economic fundamentals: IMF officials
  • U.S. Treasury to release closely watched FX report this month
China to Keep Fighting Yuan Depreciation Pressures, UBS's Kwok Says

The yuan is “broadly in line” with China’s economic fundamentals, a senior IMF official said, days before the U.S. Treasury Department is scheduled to release a closely watched report on currency manipulation.

China’s currency has fallen more than 6 percent this year against the dollar, prompting speculation it may fall through the key level of 7 per dollar. The decline has attracted the notice of the U.S., which is locked in a tit-for-tat tariff dispute with Beijing. In an interview Thursday, Treasury Secretary Steven Mnuchin said the U.S. wants to make sure the depreciation isn’t a “competitive devaluation.”

Steven Mnuchin

Steven Mnuchin

Photographer: SeongJoon Cho/Bloomberg

The IMF says the drop in the yuan reflects the People’s Bank of China’s commitment to make the exchange rate more flexible.

“According to our framework, the exchange rate of the renminbi is not out of line. It is broadly in line with the fundamentals,” Markus Rodlauer, deputy director of the fund’s Asia and Pacific Department, said in an interview Friday at the IMF annual meetings in Bali, Indonesia, using the official name for the currency.

No Manipulation

The IMF’s view is a key benchmark as trade tensions between the U.S. and China leak into the currency realm. Treasury Department staff don’t believe there’s ground to label China a currency manipulator in the department’s semi-annual foreign-exchange report, two people familiar with the matter told Bloomberg News.

It’s possible Mnuchin could revise the final report before it’s released. If the U.S. did name China a manipulator, Mnuchin would have to either enter direct talks with Beijing or conduct negotiations through the IMF.

Mnuchin, speaking in an interview with CNBC TV from Bali on Friday, said currency issues are an element of the trade talks with China. Mnuchin said he expressed concerns about “the weakness in the currency” to PBOC Governor Yi Gang this week at the IMF meetings.

Rodlauer declined to comment on the future value of the yuan. But he said the PBOC is allowing the exchange rate to respond to “market pressures,” without allowing big “destabilizing” movements.

Three or four years ago, China wouldn’t have let the currency move as much as it has this year, Rodlauer said. “It is more flexibility. Where the limits of that flexibility are in the short run to prevent this from becoming destabilizing, that is the PBOC’s judgment."

FX Management

In April, the Treasury department declined to name any major trading partner a manipulator, though it kept China on a watch list of countries to monitor.

Should Mnuchin choose to follow his staff’s advice about the yuan, he may face push-back within the White House. President Donald Trump has tweeted that he thinks China is manipulating its currency -- including days after the last Treasury report in April.

The U.S. hasn’t declared another country a currency manipulator since 1994, when it put China in that category.

— With assistance by Yinan Zhao, Saleha Mohsin, and Kasia Klimasinska

(Updates with comments from Mnuchin in seventh paragraph.)