Economic chiefs from countries around the world - including China and the US, which have been warring over the falling yuan - pledged on Saturday (Oct 13) to refrain from competitive devaluations of their currencies.
Strong fundamentals, sound policies, and a resilient international monetary system are crucial to the stability of exchange rates, and contribute to sustainable growth and investment, the steering committee of the International Monetary Fund (IMF) said in its communique after a meeting in Bali.
“Flexible exchange rates, where feasible, can serve as a shock absorber,” the International Monetary and Financial Committee (IMFC) said.
“We recognise that excessive volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes.”
Currency devaluation has been a recent tussling point between China and the US, raising already heightened tensions between two economic locked in a tit-for-tat trade war.
The yuan has plunged more than 9 per cent against the US dollar this past six months, provoking claims from the US that China is engaging in currency manipulation to bolsters its competitiveness.
Beijing has roundly denied the accusation as “groundless speculation”.
Talk of currency manipulation has dogged the annual meetings of the International Monetary Fund (IMF) and World Bank in Bali this week.
The governor of China’s central Bank Yi Gang on Saturday told his fellow IMFC members that his country will continue to let the market play a decisive role in formation of the yuan exchange rate.
“We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade fictions,” he said.
US Treasury Secretary Steven Mnuchin, yet another member of the IMFC, said that Chinese officials had informed him that a further depreciation of the yuan was not in Beijing’s interest.
“The currency issue is an important issue for us in trade, and will be part of our trade discussions,” he told reporters on Saturday.
“We want to make sure that depreciation is not being used for competitive purposes in trade.”
His Treasury is set to release a closely-watched report on currency manipulation next week – and Mr Mnuchin has been facing pressure from the White House to name China a currency manipulator.
But sources with knowledge of the report told Bloomberg that Treasury staff have advised Mr Mnuchin that China is not, in fact, manipulating the yuan.
The IMF as well has dismissed charges that China is deliberately devaluing its currency, with managing director Christine Lagarde maintaining that the yuan’s decline was merely a reflection of the strong US dollar.
On Friday, the deputy director of the fund’s Asia and Pacific Department Markus Rodlauer said: “According to our framework, the exchange rate of the (yuan) is not out of line. It is broadly in line with the fundamentals.”
Recent trade disputes cast a long shadow on this week’s meetings, which saw repeated calls todefend and update the multilateral trading systemto ensure that the gains from trade are more evenly distributed.
This was echoed by the IMFC - a 24-member committee that deliberates on the principal policy issues facing the IMF – which on Saturday pledged to enhance cooperation to tackled shared challenges.
“We recognise the need to continue to step up dialogue and actions to mitigate risks and enhance confidence in international trade, including on ways to improve the World Trade Organisation to face current and future challenges,” it said.
“We acknowledge that free, fair and mutually-beneficial good and services trade and investment and investment are key engines for growth and job creation.” Ms Lagarde told a press conference that de-escalating of trade tensions, and dialogue is crucial.
“My message is: steer the boat, don’t drift, and sail together, because we will be stronger together,” she said.
“Focus on your policies, make sure that they are the right ones in the face of economic developments. Don’t drift. And cooperate as much as we can because we are stronger together.”