US concerns over Chinese currency expected to fade as RMB no longer undervalued

WASHINGTON - After years of grabbing the spotlight in Sino-US economic relations, US concerns over the valuation of Chinese currency yuan, or renminbi, are expected to fade as the International Monetary Fund has declared that yuan is no longer undervalued, US experts said.

It's "very important" that the IMF has concluded Chinese currency is "no longer undervalued", David Dollar, a senior fellow at the Brookings Institution, a US think tank, told Xinhua in an interview on Tuesday. "I think a multilateral institution like the IMF is more likely to have an objective view."

The IMF formally changed its view of the renminbi exchange rate after the just-concluded Article IV Consultation with China, an annual economic and financial check-up between the IMF and its member countries.

"While undervaluation of the renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued," David Lipton, first deputy managing director of the Washington-based organization, said Tuesday at a press conference in Beijing.

"The People's Bank of China (PBOC) has not intervened in the currency market for a long time," which indicated that the renminbi exchange rate is at a "proper" level suggested by market fundamentals, echoed Dollar, who served as the US Treasury Department's economic and financial emissary to China from 2009 to 2013.

"My own sense is that the exchange rate issue is receded as an important issue," Dollar said, noting that China has made a lot of progress in its market-determined exchange rate reform.

"I would encourage the US side to focus on the market access issues", which are more important than currency issues, during the upcoming annual meetings of China-US Strategic and Economic Dialogue (S&ED) scheduled for next month, he added.

However, the US Treasury maintained a view that Chinese currency remains "significantly undervalued" in its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies released in April, despite the fact that the yuan has risen sharply against many currencies in recent months.

Adam Posen, president of Peterson Institute for International Economics (PIIE), another US think tank, believed the US Treasury's accusation against Chinese currency is not justified because China's current account surplus has declined sharply and the country has stopped intervening foreign exchange markets.

China's current account surplus, the broadest measure of its trade with the rest of the world, has fallen from a peak of about 10 percent of its GDP in 2007 to about 2 percent of its GDP in 2014, and China's foreign exchange reserves have fallen to $3.84 trillion by the end of last year from a peak of $3.99 trillion, which suggested the central bank was not intervening in foreign exchange markets.

Nicholas Lardy, a senior fellow at the PIIE and a leading expert on China's economy, said the US Treasury's view seems to be based on the presumption that China "should have a deficit in its trade with the rest of the world" as an emerging market economy.

The US Treasury's goal is "not to get China's current account surplus to a small number, but to get China's current account to a significant deficit", which would push up the yuan exchange rate quite a bit, Lardy told Xinhua at a press briefing earlier this month.