The Chinese government said last week that it objected to an overhaul of International Monetary Fund (IMF) guidelines for foreign exchange surveillance adopted earlier this year (see Profit & Loss, September 2007). Li Yong, China's vice finance minister and the government's representative at the IMF and World Bank's annual meetings, told fellow ministers the IMF should strictly adhere to its tradition of consensus-based decision-making, according to reports in local Chinese media.
"We regret the IMF adopted in June its policy on foreign exchange surveillance, in the absence of consensus among its members," Li said in a speech. "We believe the IMF should focus on whether a member's exchange rate regime is compatible with medium-term macroeconomic policies, not the level of its exchange rate."
The IMF also needs to strengthen its oversight of policies of countries responsible for major reserve currencies, the dollar, the euro and the Japanese yen, Li said. This year IMF members agreed to update the Fund's framework for currency policy surveillance, which had stood unchanged since 1977. The new guidelines urge governments to avoid currency regimes that foment financial market turbulence for neighbours, regardless of domestic reasons for the policies.
China is under pressure from the IMF, the US and Europe to allow its currency to appreciate faster to help reduce its massive trade surpluses, however China’s government believes the current gradual pace of appreciation is needed to prevent instability in China's banking system.