IMF presses China to overhaul currency system

Updated at 4.34pm:
The International Monetary Fund is pressing China to take further steps to overhaul a currency system that United States manufacturers blame for lost sales and factory jobs.

"There is scope to do more," David Burton, director of the IMF's Asia and Pacific Department, told reporters on Monday during a briefing on economic matters related to China.

After much pressure from the US, the IMF and other international groups, China announced in late July that it was allowing it currency, the yuan, to rise slightly against the US dollar.

However, the US government, American manufacturers, legislators in Congress and the IMF want the Chinese to do more to make their currency system more flexible.

"China's current strong economic position presents a favourable environment to allow greater exchange rate flexibility," Mr Burton said. "Thus, we continue to encourage the authorities to fully utilise the flexibility afforded by the new arrangement, and we continue to work closely with the authorities on further developing the exchange market and the exchange rate system."

US manufacturers contend that China's currency practice has artificially undervalued the yuan, hurting sales of US exports and costing US factory jobs. Last year, the US ran up a US$162 billion (HK$1.26 trillion) trade deficit with China - the largest ever with a single country.

Beijing's change in interest-rate policy in July, in which it stopped linking the yuan directly to the US dollar, was welcome, Mr Burton said.

And, while it was "understandable that an initial period" was needed after July to allow China's economy time to adjust "subsequent movement in the exchange-rate movements has been very limited", Mr Burton said.

President George W. Bush, in his trip to Asia, reported no breakthroughs with China on a range of trade issues, including efforts by the administration to prod China toward a more flexible currency system.