IMF urges more movement on yuan

The International Monetary Fund has turned up the heat on Beijing to allow the yuan to respond more to market forces, saying the currency's movements since its July 21 revaluation have been "very limited".

Under pressure from the United States to press Beijing to allow the yuan to rise, the IMF has rejected calls by US lawmakers and manufacturers to rule China a currency manipulator.

But David Burton, director of the IMF's Asia and Pacific department, said that daily movements of the yuan had been small and there was scope for it to move more.

"There is a need for the rate to respond somewhat more to market forces and both on a day-to-day basis and also over time," Mr Burton said.

Beijing revalued the yuan by 2.1 per cent in July, loosening the currency's peg to the US dollar and allowing it to trade within tightly managed bands.

Since then, the yuan has risen only a further 0.33 per cent against the US dollar, prompting more cries from Washington and increased pressure on the IMF to lean on Beijing.

Mr Burton said it was understandable that the mainland economy needed time to adjust after the July 21 revaluation.

"Having said that, we do see scope now for greater flexibility and utilising more fully the flexibility allowed in the existing system."

Mr Burton said the rebalancing of growth from investment towards consumption would help Beijing sustain its high economic growth rates and distribute the wealth across the population.

But that rebalancing would require a combination of policy measures and reforms - and more flexibility in the yuan would help, he added.

"Greater exchange-rate flexibility would contribute to rebalancing the composition of economic growth by reducing distortionary influence in investment decisions and potentially raising consumption by boosting households' real income."

Mr Burton said the IMF had been working closely with Beijing on its foreign-exchange policy since 1999 and encouraging it to introduce more flexibility in the yuan.

US newspapers reported last week that the administration of President George W. Bush wanted IMF managing director Rodrigo Rato to hold a special consultation with China to press Beijing to change its currency practices.

US Treasury Department spokesman Tony Fratto said on Monday its report on foreign- exchange practices of key trade partners, including China, was still expected to be released this month.

Treasury Secretary John Snow is not expected back in Washington this week. If he decides to hold a press conference to discuss the report's findings, as he did in May when the last one was issued, that would make next Monday or Tuesday the most likely time to issue the currency report.