The chief of the International Monetary Fund said Tuesday that Beijing should let its currency rise as a stronger yuan would help China's development and ease global imbalances.
IMF managing director Dominique Strauss-Kahn's comments came as U.S. President Barack Obama was visiting Beijing amid strains over trade and China's currency. Washington says the weak renminbi, as the currency is also known, gives Chinese exporters an unfair price advantage, adding to the U.S. trade deficit.
"We do believe firmly in the IMF that the renminbi is undervalued, and that it is not only in the interests of the global economy but also in the interests of China to have revaluation of the currency," Strauss-Kahn told reporters.
A stronger yuan would help Beijing's effort to boost consumer spending and reduce reliance on investment and exports to drive growth, he said.
Strauss-Kahn met with Chinese officials during a two-day visit and said such a rebalancing is the government's goal. But he said he had "very little insight" into when Beijing might allow the yuan to rise against the dollar.
Beijing broke the yuan's direct link with the dollar in mid-2005 and allowed it to rise by more than 20 percent against the U.S. currency over the next three years. But that increase stopped in late 2008 as Beijing tried to help its exporters stay competitive amid plunging demand. The yuan has held steady against the dollar since then.
Strauss-Kahn said China has gained from stronger exports due to a weak currency that held down prices of its goods abroad. But he said the rest of the economy suffered distortions.
"If you have wrong prices you make wrong decisions, especially concerning investments," he said. "It's now time for China, having accumulated a lot of advantages from an undervalued currency, to look more forward to investment and long-term stability, and this long-term stability goes with getting rid of this distortion."
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