Roundup: U.S. experts, IMF positively evaluate China's move to improve FX formation system

The Chinese central bank's decision to improve its foreign exchange rate formation system is market-oriented and helpful in sending the RMB into the Special Drawing Right (SDR) of the International Monetary Fund (IMF), U.S. experts said Tuesday.

Earlier in the day, the People's Bank of China (PBOC) announced the decision to improve its central parity system to better reflect market development in the exchange rate between the Chinese yuan against the U.S. dollar.

"The IMF had a number of issues for the Chinese to consider changing ahead of SDR basket acceptance. One of those was the shift to a more market-set currency rate," Robert Savage, CEO of CC Track Solutions, told Xinhua.

"This move to make the fixing more market-oriented will be supported by the IMF," he said.

Chris Low, chief economist for FTN Financial, also noted that China's markets are more open than ever in an effort to meet the requirements of the IMF and join the SDR.

Meanwhile, the experts dismissed the idea that the Chinese central bank's move aims to gain a competitive advantage in exports.

Low argued that China has in fact strengthened its currency by 10 percent since 2010 against the U.S. dollar even as the rest of the world has aggressively devalued.

Anyone ranting about this devaluation should be asked what they think about Europe's devaluation last year, or Japan's, or the dollar devaluation under the first three rounds of Quantitative Easing (QE), he said.

For his part, Savage said the impact of the Chinese yuan's weakening on the global economy is limited.

"The one-off devaluation of 2 percent isn't that big, as the RMB in real terms has gained in the last 12 months for 14 percent against its trading partners," he said.

"The world economy is unlikely to feel much effect, but many are concerned that this is the start of a larger movement in other emerging markets," he said.

Savage also pointed out that there is an important balancing act for Chinese regulators.

"(Regulators need to) let the market set the rate but not to tilt the RMB to a level where outflows of capital increase over fear of devaluation," he said.

In a statement, the IMF described the Chinese central bank's move as "a welcome step," saying a more market-oriented exchange rate would facilitate the SDR operation if the RMB was included in the basket.

"The new mechanism for determining the central parity of the Renminbi announced by the PBOC appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate," an IMF spokesperson said in the statement.

Greater exchange rate flexibility is important for China as the country strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets, the spokesperson said.

The IMF also said it believes China can achieve an effective floating exchange rate system within two or three years.

Meanwhile, the U.S. Treasury said it would continue to monitor the Chinese central bank's move, reiterating that policies that reflect China's desire to move towards a consumption-driven economy are in the best interests of China and the United States.

"While it's too early to judge the full implications of the change in the PBOC reference rate, China has indicated the changes announced today are another step in its move to a more market-oriented exchange rate," the Treasury said in a statement.

The Treasury acknowledged that China's progress in promoting financial reforms, including its commitments made at the recent China-U.S. Strategic and Economic Dialogue to move towards a more flexible, market-determined exchange rate, had limited foreign exchange intervention, and increased the transparency of its exchange rate policies. Endi