China has expressed "reservations" about a new International Monetary Fund (IMF) ruling on exchange rate policy, saying drastic exchange rate fluctuations in a country will damage its economic stability.

 

The IMF's Executive Board decided on Friday on a new framework for IMF bilateral surveillance, or the way the Fund monitors and assesses its members' economies.

 

It is an update of the 1977 Decision on Surveillance over Exchange Rate Policies. The revised decision adds the new principle that a member should avoid exchange rate policies that result in external instability.

 

The ruling has been widely interpreted as a move to increase pressure on China to allow a faster revaluation of the yuan.

 

"As it does not fully reflect the opinions of developing countries, China has expressed reservations about the adoption of this decision," said a statement of the People's Bank of China.

 

Past experience has shown that exchange rate adjustment has a role in resolving external imbalances, but it is not the fundamental and only instrument to that end, the statement said.

 

"In the past years, many developing countries, China included, have worked hard to adjust their domestic economic structure, improve market mechanisms and increase exchange rate flexibility. These efforts have contributed to the rapid growth of the global economy."

 

(China Daily June 21, 2007)