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IMF welcomes a flexible Yuan but says more is needed

world Updated: Jun 29, 2010 15:44 IST

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International Monetary Fund on Monday welcomed China's decision to make Renmibi, popularly known as Yuan, more flexible, but said more was needed to address the existing trade imbalances.

"Of course, reevaluation of the renminbi goes in the right direction, and we're still pushing for this. But there are a lot of other sources of imbalances, which will not be addressed only by changing the currency", the IMF Managing Director, Dominique Strauss-Kahn, told reporters in a group interview.

China had pegged Renminbi to dollar from last 18 months to help its export-led economy tide over the global economic crisis. However, just days before the G-20 summit in Toronto last week, China decided to align the currency on a free floating exchange rate.

The move will allow Renminbi's value to appreciate in reflection of market conditions, driven by the factors of supply and demand. Strauss-Kahn, who did not forsee an immediate sharp appreciation in the value of Renminbi said it will be some time before the currency realised its true market value.

The IMF managing director warned a very strong reevaluation of Renminbi would not alone solve all the trade imbalances.

On a question if the IMF was considering including renminbi in its SDR (Special Drawing Rights) basket of currencies, Dominique Strauss-Kahn said: "It will be difficult to include the renminbi before it's really at the market price of, in one way or another, floating currency.

"But the sooner the better because as time goes by, there are more and more reasons to include other currency in the SDR basket, starting with the renminbi, he said.

"So I think that's something we have to consider, but, of course, it implies some move, not in the value of the renminbi, that's another question, but in the way the renminbi is integrated into the market," Strauss-Kahn said.

On the just concluded G-20 Summit in Toronto, the IMF Managing Director said that even though countries will take different strategies in trying to improve their economies, the summit should be viewed as a success.

"G-20 leaders showed common resolve to contain budget deficits and ballooning debt levels, but decided to take different paths to promote growth and make their financial systems safer", he said.

"The diverging strategies are a sign of how uneven and fragile the global recovery remains, with Asia and most Latin American countries expanding quickly, Europe lagging behind and the US somewhere in the middle", Strauss-Kahn said.