For years, China has been criticized for keeping its currency from strengthening too much against the dollar. But those days may be over — the International Monetary Fund has declared that the yuan is “no longer undervalued.”
“Appreciation over the past year has brought the exchange rate to a level that is no longer undervalued,” according to an IMF statement.
China’s yuan, also called the renminbi, has risen about 0.5% against the U.S. dollar in the last year.
The IMF’s take on this marks a significant shift, and comes as Beijing continues to promote the yuan as a global reserve currency for central banks — an alternative to the dollar.
China has historically kept tight control of its currency — favorable exchange rates have helped boost exports and manufacturing over time. But China has continued to draw ire from the U.S. government for keeping it artificially low.
China continues to set its daily exchange rate, allowing the yuan to fluctuate within a fixed range. Beijing has begun to loosen its grip — last year, the central bank doubled the permitted trading range for the yuan.
Still, the IMF is urging China “to achieve an effectively floating exchange rate within two to three years…[and] greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility,” according to the statement.
Overall, the IMF is fairly optimistic that China is moving in the right direction, even as it forecasts slower economic growth at 6.8% this year, which is below the government’s own 7% target.
A gradual slowing in the pace of growth is a “by-product of moving the economy away from the unsustainable growth pattern of the past decade,” it said.
Stock markets in China posted neutral reactions Wednesday morning, with the Shanghai Composite up 0.2%.