Nov. 3 (Bloomberg) -- International Monetary Fund Managing Director Dominique Strauss-Kahn said he anticipates China will address its “undervalued” currency, an issue that has stoked tensions with American manufacturers.

“We still believe in the IMF that the renminbi is undervalued,” Strauss-Kahn said in an interview on Bloomberg television in Washington. The exchange rate needs to appreciate “in the coming years but I think that the process which is now at work is a process which goes in this direction.”

The U.S. Treasury, in an April report, refrained from labeling China a manipulator of the yuan’s exchange rate, a decision criticized by the U.S. Business and Industry Council. It accused President Barack Obama of breaking a major election commitment to “fight Chinese exchange-rate protectionism.”

By law, the Treasury has to enter direct talks with a country deemed to be manipulating its currency, and also seek redress through the IMF. The department said in April it would “use every opportunity” to engage the Chinese “to permit greater flexibility” in the yuan, also known as the renminbi.

A stronger yuan will result from a shift in China to greater dependence on domestic demand and away from exports, Strauss-Kahn said. His remarks come as Group of 20 finance chiefs prepare to gather this week in Scotland to flesh out their commitments to addressing the global trade and investment imbalances that contributed to the financial crisis.

Rebalancing Economy

The IMF chief said today the global finance crisis has already started rebalancing the world economy as U.S. consumers are saving more and China moves toward a “more domestic-led” growth model, which is going to lead the yuan to revalue.

“It will take some time, it will not be done overnight, but the two moves in the U.S. and in China go in the same direction, which is reducing global imbalances,” he said.

China has prevented the yuan from appreciating since July 2008, after it advanced 21 percent against the dollar over three years. The Bank of China today set the yuan’s daily fixing rate at 6.8279 per dollar. The yuan is allowed to move as much as 0.5 percent either side of that rate.

The dollar has weakened this year against all of its 16 most-traded counterparts, dropping 6.6 percent against the South Korean won and 5.4 percent against the euro.

The Washington-based IMF expects the global economy to expand 3.1 percent next year after contracting 1.1 percent this year, with demand in Asia and stimulus programs helping pull the world out of its worst recession since World War II.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net;

Last Updated: November 3, 2009 20:53 EST