IMF head says China currency is undervalued but could change

PARIS: The head of the IMF said Wednesday the Chinese currency was still undervalued but added that it could strengthen in response to higher US savings and increased domestic Chinese demand.

"The IMF continues to believe the renmimbi is substantially undervalued but things could change," Dominique Strauss-Kahn told a seminar here on Europe's relations with China.

He said a recent increase in the US savings rate, if it lasts, could help reduce the country's current account deficit as imports decline.

"On the other hand, the re-focusing of the Chinese economy" on domestic demand could enable "a gradual revaluation of China's currency."

"Thus, from both perspectives, there is movement in the right direction" to correct the under-valuation of the currency," Strauss-Kahn said.

He predicted that "a rise in the value of the renminbi will take place gradually according to the interests of the Chinese economy.

"The re-balancing will happen because it is in the interest of the Chinese economy but it will happen progressively."