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October 14, 2018

China echoes IMF pledges to avoid using currency as trade war tool


October 14, 2018

NUSA DUA, Indonesia: China's top central banker on Saturday pledged to keep the yuan currency´s value "broadly stable," a sign that Beijing may be trying to prevent a bruising trade dispute with the United States from spilling over into a currency war.

People´s Bank of China Governor Yi Gang´s statement at the International Monetary Fund and World Bank annual meetings in Bali came as US Treasury Secretary Steven Mnuchin said Chinese officials had told him that further yuan depreciation was not in China´s interest.

Mnuchin has reiterated his concerns that a major drop in the yuan´s value this year against the dollar could be part of an effort to gain a trade advantage for Chinese exports or to offset the impact of US tariffs.

The yuan has fallen more than 8 percent against the dollar since the end of April to about 6.91 on Friday, close to the psychologically important 7.0 level not seen in a decade.

"China will continue to let the market play a decisive role in the formation of the RMB exchange rate," Yi said in an International Monetary and Financial Committee (IMFC) statement posted on Saturday. "We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.

"His statement echoes currency pledges made in a communique issued by the IMF´s member countries on Saturday to step up their trade dialogue as rising tariff frictions, and higher borrowing costs threaten to knock global growth. In the statement from the IMF´s steering committee, the member countries also agreed to debate ways to improve the World Trade Organization so it can better address trade disputes.

"We acknowledge that free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation," the IMFC said in the statement. "We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes," it added.

On Thursday, IMF Managing Director Christine Lagarde warned countries against engaging in currency and trade wars, which would hurt global growth as well as "innocent bystander" nations, including emerging markets that supply commodities Some of these countries, including Indonesia, the host of the IMF and World Bank meetings, are already struggling to contain capital outflows prompted by higher US interests rates.

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