July 21, 2011
An acceleration of the yuan revaluation is important for the world economy but a strengthening Chinese currency policy has limited effects on the rest of the world, said Thursday the International Monetary Fund.
For the IMF, the yuan “remains substantially” to a level below the medium-term fundamentals of the Chinese economy.
In a footnote on internal report of the IMF, the undervaluation of the yuan against a basket of currencies is estimated in the range between 3% and 23% depending on the methodology used to calculate the theoretical value.
For the first time, the IMF this year examined the impact of policies of the five major world economies (China, U.S., Eurozone, Japan and Great Britain) on the global economy.
The report concluded that the exchange rate system of China has limited effects on global imbalances. However, the undervaluation of the yuan slows a rebalancing of economic development in China to reduce the importance of exports for the benefit of domestic demand.
A possible revaluation of the yuan should be accompanied by measures to promote domestic demand, particularly to reduce the share of private savings.
RISK of housing bubble
The IMF has asked partners of China what their main concerns about Chinese economic policy. The first answer was the sustainability of rapid economic growth of this country.
“The fear is that overheating in China Grow pressure on commodity prices and attract short-term capital to the region,” the IMF.
Partners of China are also concerned that continued high investments in this country leads to excess capacity. Given the uncertainty of demand in developed economies, they point out the risk of “a hard landing, the consequences would be felt beyond China.”
China has concern about the high level of debt among its partners, including the United States.
Moreover, the IMF reiterated its concerns about the development of a housing bubble in China even if predicted a deceleration of inflation in a period of one month or two.