IMF's Lagarde says markets need clarity on China currency

Sat Jan 23, 2016 9:05am EST
 
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By Paul Taylor and Noah Barkin

DAVOS, Switzerland (Reuters) - Financial markets need more clarity on how Chinese authorities are managing their currency, particularly the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday.

Sharp swings in the yuan have contributed, along with a dramatic fall in the price of oil, to global market volatility since the beginning of 2016.

Bank of Japan Governor Haruhiko Kuroda, speaking on the same panel at the World Economic Forum in Davos, said he believed China should use capital controls to stabilize its currency while keeping domestic monetary policy loose.

Asked whether she would back capital controls by China for a period, Lagarde avoided a direct reply but said: "Certainly a massive use of reserves would not be a particularly good idea ... Some of it was already used."

She said that the market needed "clarity and certainty" about China's exchange rate basket "in particular with reference to the dollar, which has always been the reference".

"That would be the right move to make," she added.

Kuroda said China was right to keep monetary policy accommodative to help cushion the country's transition from a export-led industrial economy to a demand-driven consumer economy without excessive depreciation of the yuan.

"This is my personal view and may not be shared by Chinese authorities, but in this kind of contradictory situation, capital control could be useful to manage exchange rate as well as domestic monetary policy in a consistent, appropriate way."   Continued...

 
Chinese 100 yuan banknotes and a U.S. one dollar banknote are seen in this picture illustration in Beijing, China, January 21, 2016. REUTERS/Jason Lee