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IMF said China should keep flexible exchange rate for yuan if trade war worsens

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The International Monetary Fund on Friday said that the value of China’s yuan was largely in line with economic fundamentals and China should keep its exchange rate flexible if additional intensification of the trade war with the US threatens further harm to the economy, according to a report completed before the recent escalation of tensions.

James Daniel, director of the IMF’s China department, said that an assessment of China’s economic policies found the yuan exchange rate in 2018 to be “not significantly over-valued or under-valued.”

The US last Monday labeled China a “currency manipulator” the yuan’s slid past 7 to the dollar for the first time in more than a decade.

US Treasury Secretary Steven Mnuchin is seeking to engage the IMF to help “correct” an unfair trade advantage from Beijing’s currency actions, but Daniel declined to say how the IMF was responding to the request.

The IMF said in the report that a worsening of trade tensions with the United States could put China’s economic and financial stability at risk, making new fiscal stimulus measures from the government warranted.

The IMF said if the United States were to impose 25 per cent tariffs on a remaining $300 billion of Chinese imports, this would reduce China’s growth by around 0.8 percentage points over the following 12 months, driven by a sharp fall in demand and a tightening of financial conditions. Negative global spillovers could be significant, it added.

He also said the IMF was pressing China for structural reforms to its economy, including opening more sectors to foreign competition and reducing the role of the state in certain industry — goals also broadly sought by the Trump administration.

 

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