IMF welcomes China currency devaluation

PHOTO: Reuters

WASHINGTON - The International Monetary Fund welcomed Beijing's surprise devaluation of the country's currency, saying it will allow market forces to play a greater role in the nation.

China cut the yuan's value against the dollar for a second day Tuesday, sending ripples through financial markets and raising fears that the currency could fall further.

The IMF said the step could be a boon in the long run.

"The new mechanism for determining the central parity of the renminbi (yuan) announced by the PBC (People's Bank of China) appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate," an IMF spokesman said in a statement.

"Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets," the statement said, adding that China should achieve a floating exchange rate within two to three years.

After Tuesday's devaluation Chinese authorities said they were seeking to push market reforms in a one-time move.

Officials will now use the previous day's close, foreign exchange demand and supply and the rates of other major currencies to decide the daily rate around which the Chinese currency can trade.

China has been criticized by some for keeping its currency undervalued to gain a trade advantage for its exports.