Appreciation when it's due

5 October 2009 By John Foley Follow @johnsfoley

China s too cheap currency helped cause global imbalances. But a sharp revaluation when trade is weak could have unhappy consequences, especially for Asian countries whose imports China processes. China badly needs a new growth model, but a major currency experiment can wait.

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The International Monetary Fund (IMF) renewed calls for China to revalue its currency, the renminbi, as the World Bank and IMF annual meetings commenced in Istanbul. The IMF view still is the renminbi is undervalued, said Dominique StraussKahn, head of the fund.

The renminbi was officially depegged from the US dollar in 2005, but its value is still closely managed by China's monetary authorities. Since January 2005, the renminbi appreciated 27% against the dollar, but has remained effectively flat since summer of 2008, at around Rmb6.8 to $1.

Canada's finance minister, Jim Flaherty, also called for China to relax restrictions on the renminbi on October 1. Yi Gang, a deputy governor of the Chinese central bank, said in response to such calls that the country would stand by its current currency practices, adding that China's exchange rate policy is very clear.

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Appreciation when it's due

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