IMF: Yuan stable, little sign of intervention by PBOC

The International Monetary Fund (IMF) released a report on Friday in Washington showing the yuan was broadly stable against the basket of currencies despite the yuan/dollar depreciation.

"Despite the RMB/USD depreciation, the RMB was broadly stable against the basket and depreciated in real effective terms by about 2½ percent since the last Article IV. Estimates suggest little FX intervention by the PBOC (The People's Bank of China)," the report said.

The report is based on the Executive Board of the IMF the Article IV consultation with China, which was concluded on July 31, 2019.

"The bilateral RMB/USD rate depreciated relatively rapidly from mid-June to early August 2018, when measures to counter depreciation pressure – the 20 percent reserve requirement for FX derivatives (a capital flow management measure (CFM)) and the countercyclical adjustment factor (CCAF) in the daily trading band's central parity formation – were reintroduced," the report said.
"At about US$3.2 trillion, China's foreign currency reserves remain more than adequate to allow a continued transition to a floating exchange rate," the report said.

The Trump administration labeled China a currency manipulator on Monday, after yuan fell past 7 against the dollar.

Jeffrey Sachs, economics professor at Columbia University, said, "The IMF report makes clear that there has been absolutely no currency manipulation and that China's external balance has been appropriate," according to Xinhua.

"The US Treasury action declaring China a currency manipulator was blatantly arbitrary, capricious and political, based on Trump's tweets rather than on objective analysis," said Sachs.

Based on the press releases of IMF, China's economic growth stabilized in early 2019 and is expected to moderate to 6.2 percent and 6.0 percent in 2019 and 2020, respectively.

The IMF Executive Directors acknowledged China's recent reform progress, in particular, in reducing financial sector fragilities and continuing opening up of the economy. They noted the highly uncertain external environment and emphasized that successfully shifting from high-speed to high-quality growth requires continuing with deleveraging and strengthening rebalancing efforts while adjusting macroeconomic policies to respond to rising trade tensions.

The directors welcomed the Chinese government's commitment to multilateralism and a rules-based trading system. In this regard, they saw scope for China to work constructively with trading partners to better address shortcomings in the international trading system. They agreed that tensions between China and the United States should be quickly resolved through a comprehensive agreement that avoids undermining the international system, according to the report.

Editor: John Li