Lagarde Says China’s Yuan Widening Isn’t Intentional Weakening

International Monetary Fund Managing Director Christine Lagarde said China isn’t intentionally weakening its currency and the government’s decision last month to widen the yuan’s trading band reflects an “internationalization” of the currency.

“I certainly took the recent increase of the band of variation of the yuan as a move in the direction of the internationalization of the currency,” Lagarde said in Washington today. “I would not characterize it as an intended depreciation of the currency and certainly welcome the internationalization of the yuan going forward. I believe that there will be steps in that direction going forward in terms of China’s contribution to international growth.”

China allowed the yuan to depreciate before widening the exchange-rate band on March 17. The changes occurred as China continued to build current-account surpluses, accumulate excessive foreign reserves and attract significant net foreign direct investment. The currency has lost more than 2 percent in three months.

The yuan today fell 0.19 percent, the most since March 25, to close at 6.2125 per dollar in Shanghai, China Foreign Exchange Trading System prices show. The decline came after data showed China’s exports unexpectedly dropped last month, fueling concern a slowdown in the world’s second-largest economy is deepening.

Lagarde also said she is confident that the “rebalancing that we have advocated” is the “intended policy” of the Chinese government.

U.S. Treasury Secretary Jacob J. Lew told CNBC yesterday that China needs “to get back on the path of demonstrating that they’re committed to moving towards a market-determined exchange rate.”

“If they want it to be a reserve currency some day, they need to demonstrate that,” he said.

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