Let yuan rise, IMF boss tells China

Head of International Monetary Fund says China must allow its currency to rise.

    Strauss-Kahn, centre, repeated calls for the Chinese to allow the yuan to rise [AFP]

    "Allowing the renminbi [Chinese yuan] and other Asian currencies to rise would help increase the purchasing power of households, raise the labour share of income and provide the right incentives to reorient investment."

    The Chinese government broke the yuan's direct link with the dollar in mid-2005 and allowed it to rise by more than 20 per cent against the US currency over the next three years.

    But that increase stopped in late 2008 as Beijing tried to help its exporters stay competitive amid declining demand. The yuan has held steady against the dollar since then.

    At a separate news conference, a spokesman for the Chinese commerce ministry told reporters that Chinese exporters do not see trade improving and need a stable exchange rate.

    Key reserve currency

    A row between the US and China over tarrifs on Chinese tyres has strained ties [AFP]
    "If we only ask other countries to appreciate their currencies while the dollar is declining, it is not good for the world economic recovery," Yao Jian said.

    Yao added that the impact of the exchange rate on China's trade surplus was "very small".

    Despite the ongoing problems in the international monetary system, Strauss-Kahn said the US dollar would remain the key reserve currency "for some time".

    China and Russia have expressed concern about the dollar's stability and called for creation of an alternative currency, possibly one managed by the IMF.

    On the global economy, Strauss-Kahn warned that the recent recovery is
    uneven and said governments should avoid withdrawing stimulus measures too
    soon.

    "The biggest risk is a premature withdrawal of policy stimulus," he said.

    "While it is prudent to plan for so-called 'exit strategies,' policy makers should keep supportive measures in place until a recovery is firmly established, and particularly until conditions are in place for unemployment to decline."

    SOURCE: Agencies


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