The International Monetary Fund sees little evidence that China's central bank has deliberately reduced the value of the nation's currency — a position at odds with the Trump administration's decision this week to accuse Beijing of manipulating the yuan.

The IMF says in its yearly review of China's economy that the yuan has been "broadly stable" against other currencies, suggesting that there's been little intervention by the People's Bank of China. A weaker yuan would give Chinese exporters a competitive price advantage over foreign rivals.

The Treasury Department on Monday named China a currency manipulator for the first time since 1994. The move, reversing its decision in May to keep China off the blacklist, came after Beijing's central bank let the yuan drop to its lowest point in 11 years. </s> WASHINGTON (Reuters) - The International Monetary Fund on Friday stood by its assessment that China’s yuan valuation was largely in line with economic fundamentals, but an IMF official said the fund was encouraging China to pursue a more flexible exchange rate with less intervention.

James Daniel, director of the IMF’s China department, said that an assessment of China’s economic policies found the yuan exchange rate in 2018 to be “not significantly over-valued or under-valued.”

The IMF’s views on the yuan are at odds with those of its largest shareholder, the United States, which this week declared China a “currency manipulator” after it allowed the yuan to slip below 7 to the dollar.

U.S. Treasury Secretary Steven Mnuchin is seeking to engage the IMF to help “correct” an unfair trade advantage from Beijing’s currency actions, but Daniel declined to say how the IMF was responding to the request.

“Our discussions with the U.S. Treasury are ongoing on a range of issues,” Daniel told reporters on a conference call, echoing an earlier statement from an IMF spokesperson.

The IMF said in the report that a worsening of trade tensions with the United States could put China’s economic and financial stability at risk, making new fiscal stimulus measures from the government warranted. </s> The International Monetary Fund said Saturday that the People's Bank of China has made few interventions on the yuan's exchange rate in recent years.

In its report on the performance of the Chinese economy over the last year, the IMF said that after the devaluation of the renminbi (the yuan's official name) between June and August 2018, the currency remained generally stable compared to other major international currencies. </s> WASHINGTON (AP) — The International Monetary Fund sees little evidence that China’s central bank has deliberately reduced the value of the nation’s currency — a position at odds with the Trump administration’s decision this week to accuse Beijing of manipulating the yuan.

The IMF said Friday in its yearly review of China’s economy that the yuan has been “broadly stable” against other currencies, suggesting there’s been little intervention by the People’s Bank of China. A weaker yuan would give Chinese exporters a competitive price advantage over foreign rivals.

The Treasury Department on Monday named China a currency manipulator for the first time since 1994. The move, reversing its decision in May to keep China off the blacklist, came after Beijing’s central bank let the yuan drop to its lowest point in 11 years.

“Clearly, they are manipulating their currency,” White House trade adviser Peter Navarro told CNBC Friday.

China’s central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency — or order commercial banks to do so — to keep the yuan’s price from swinging too widely.

In letting the yuan slide, the central bank was responding to economic reality. China’s economy is slowing — partly because President Donald Trump has slapped tariffs on $250 billion worth of Chinese imports — and market pressures are pulling the currency down.

The world’s two largest economies are locked in a tariff war over U.S. allegations that China is stealing trade secrets and forcing foreign companies to hand over sensitive technology. Twelve rounds of talks have failed to end the impasse, and a Chinese delegation is expected in Washington next month to continue the negotiations.

But Trump rattled financial markets Friday by saying it would be “fine” with him if talks got called off. The Dow Jones Industrial Average fell 90.75, or 0.3%, to 26,287.44, and the Nasdaq dropped 80.02, or 1%, to 7,959.14. </s> The U.S. Treasury Department designated China as a currency manipulator on Monday afternoon, after the yuan’s value against the dollar fell below a “line in the sand” and intensified trade tensions. In a statement, the Treasury Department said Secretary Steve Mnuchin, “under the auspices of President Trump,” has determined that China is a currency manipulator. “As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions,” the Treasury department said, explaining: “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain unfair competitive advantage in international trade.” China’s currency weakened early Monday, trading at more than 7 yuan per U.S. dollar for the first time in more than a decade. The perceived willingness by China to use the yuan as a trade weapon led to a huge selloff on Wall Street, with the Dow Jones Industrial Average and S&P 500 falling almost 3%, while the tech-heavy Nasdaq Composite slid 3.5%.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news. </s> The executive board of the International Monetary Fund on Friday said policy measures already announced by Beijing should be enough to deal with the hit to the economy from the U.S.-China trade battle, but that additional stimulus could be warranted if rising tensions put economic and financial stability at risk. In a regular assessment, IMF directors continued to call for more exchange-rate flexibility and policy transparency, with some directors also calling for disclosure of FX interventions. The U.S. earlier this week formally labeled China a currency manipulator after Beijing failed to arrest a fall in the yuan USDCNY, +0.0000% that saw the currency trade at more than 7 per dollar. In a July report, also released Friday, IMF staff aid that despite a depreciation in the value of the yuan versus the dollar after August of last year, the currency was broadly stable against a basket of currencies and that estimates "suggest little FX intervention" by the People's Bank of China. </s> WASHINGTON (Reuters) - Formally declaring China a currency manipulator may scratch a long-term itch for U.S. President Donald Trump, but the move provides few new tools that have not already been employed in two years of trade negotiations with Beijing.

U.S. Treasury Secretary Steven Mnuchin issued the declaration late on Monday, after China's central bank let the yuan slip below the psychologically important level of seven yuan to the dollar.

The move marks the first manipulator designation since 1994, when China was declared a manipulator.

The main purpose of such designations under a 1988 U.S. currency law was to force negotiations with the offending country over their foreign exchange practices, but the United States and China have been locked in comprehensive trade negotiations -- including on currency issues -- for more than two years without result.

It is difficult to see how a designation will change the situation other than fanning trade and currency war flames, said Mark Sobel, a former senior U.S. Treasury and IMF official who worked on monetary issues.

"There's not much here. The remedies are very weak and the IMF already said what it thinks about the yuan," said Sobel, who now works with the Official Monetary and Financial Institutions Forum, a London-based think tank.

The IMF said last month that the yuan's valuation was in line with China's softer economic fundamentals, though the dollar was overvalued by 6% to 12%.

WHAT HAPPENS NEXT

If a country is found to be manipulating its currency for a trade advantage, Treasury is required by law to enter bilateral negotiations with that country or work through the International Monetary Fund to correct the situation. The aim is to eliminate any unfair advantage brought on by the unfairly devalued currency.

If no solution can be found, the president can impose various penalties such as banning Overseas Private Investment Corp financing in that country or excluding it from U.S. government procurement contracts.

China is neither a major recipient of government contracts nor financing from OPIC, which is positioning itself with $60 billion in new funding to better compete with China's own Belt and Road infrastructure development initiative.

Trump promised during his 2016 election campaign that he would declare China a currency manipulator on "day one" of his presidency. But for over two years, Mnuchin declined to do so in the Treasury's semi-annual currency reports, relying on criteria that showed China's global current account surplus was shrinking and that the yuan level was largely stable after a major drop in 2015.

In May, China was again spared a manipulator designation, even with tighter new criteria specifying that global current account surpluses should not exceed 2% of gross domestic product as trade talks continued.

Even during the mid-2000s, when China's yuan was widely viewed to be significantly undervalued and its current account surplus approached 10% of GDP, the United States refrained from a currency manipulator designation.

At the time, China and the George W. Bush administration were already engaged in bilateral talks on currency and other broad trade and economic reform issues called the Strategic Economic Dialogue. The dialogue was continued and renamed under President Barack Obama and has since been derided by Trump as ineffective.

When the U.S. Congress first enacted a currency review law in 1988, there were few international forums for resolving such disputes, well before the launch of the World Trade Organization. The Treasury declared Taiwan and South Korea manipulators that year, and slapped China with such a declaration in 1994.

A report by the U.S. congressional Government Accountability office found that all three countries in subsequent negotiations with the United States made substantial reforms to their foreign exchange regimes and saw the manipulator designation lifted.

China unified its dual exchange rate system in 1994 after the last designation, and has since pegged the value of its currency to the U.S. dollar. </s> Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.

Experts in international trade and monetary policy are skeptical of the U.S. Treasury’s claim that China is manipulating its currency, and say the accusation only adds fuel to the simmering trade dispute that has weighed on global growth and equity markets.

“President Trump’s labelling of China as a ‘currency manipulator’ is likely to inflame and intensify already fraught relations between the two world’s largest economies,” said Nigel Green, founder and CEO of the deVere Group.

On Monday, the Chinese yuan, also called the renminbi, crossed the symbolically significant exchange rate of seven to the U.S. dollar. In a statement issued Monday, Treasury Secretary Steven Mnuchin accused China of trying “to gain unfair competitive advantage in international trade.”

The declaration could be a pretext for additional sanctions against Chinese goods and businesses. "In practical terms, the actions this week can be expected to pave the way for more sanctions to be imposed on China from the U.S.,” Green said.

Trump has accused China of manipulating its currency since he was on the campaign trail. He promised to make such a declaration on “day one” after his election, but had not done so.

As such, some experts saw a political motive for Monday’s pronouncement.

“They get to satisfy the President,” said Nicholas Lardy, a senior fellow at Peterson Institute for International Economics.

“There are technical requirements to be called a currency manipulator under the law… and it does not appear that China has met those requirements,” said Craig Allen, president of the U.S.-China Business Council. “There’s no magical formula to say what is an overvalued or undervalued currency.”

Mnuchin said the U.S. would engage with the International Monetary Fund “to eliminate the unfair competitive advantage created by China’s latest actions,” but there is no indication that the organization would side with its conclusions.

“It could well be that the I.M.F. will come to a different conclusion than the Treasury and Trump,” Lardy said.

Contrary to Treasury Department’s assertion that China has been actively driving down the value of its currency, the reverse has been taking place, Allen said. Beijing has been propping up the value of the yuan as the trade war and other factors have taken a toll on its economy.

“The Chinese government has been active in supporting the renminbi, not devaluing it,” Allen said.

But by allowing that support to be removed and letting the renminbi drop, China showed its cards—that it's within its power to influence the currency's strength or weakness.

There are a number of supportive measures available to Chinese policymakers, including setting the starting rate for daily trading of the yuan, selling yuan-denominated financial instruments and tightening capital controls to prevent market flight. Experts theorized that Beijing temporarily might have backed off those supportive measures, causing the yuan to fall against the dollar. On Tuesday, its value rose incrementally, edging back above seven.

If China did influence value of its currency, it was more likely motivated by ongoing protests in Hong Kong than trade tensions with the U.S., said Jamie Cox, managing partner at Harris Financial Group.

“If this spills over into mainland China, it would definitely make their economy suffer,” he said. “It’s bigger than the trade situation. They’re concerned about their economy at large.”

And if the Trump administration’s declaration was a gambit to bait China into more drastic measures, the move backfired, Cox said.

“The Chinese basically didn’t bite. The President came back and labeled them a currency manipulator. A logical conclusion would’ve been for them to devalue more, but that’s not what they did,” he said.

Being able to paint Trump as the bully gives China a moral high ground that hurts America’s standing on the world stage, Lardy said. The combination of the currency accusation and the imposition of tariffs — following a promise not to at the G20 Summit — gives them plenty of ammunition, Lardy said. “Trump has taken a preemptive action in violation of his previous pledge to Xi.”

This gives the Chinese trade delegation less motivation to reach an accord, despite the economic costs. “Their incentive to carry out any negotiations is seriously undermined,” he said.

But by allowing that support to be removed and letting the renminbi drop, China showed its cards that it's within its power to influence the currency's strength or weakness. </s> By David Lawder, Andrea Shalal and Andrew Galbraith

WASHINGTON/SHANGHAI (Reuters) - A yearlong U.S.-China trade war boiled over on Monday as Washington accused Beijing of manipulating its currency after China let the yuan drop to its lowest point in more than a decade.

The U.S. Treasury Department announced late on Monday that it had determined for the first time since 1994 that China was manipulating its currency, knocking the U.S. dollar .DXY sharply lower and sending gold prices XAU= to a six-year high.

The designation by U.S. Treasury Secretary Steven Mnuchin starts a formal process of bilateral negotiations between the world’s two largest economies, and fulfills a promise made by U.S. President Donald Trump on his first day in office.

“As a result of this determination, Secretary Mnuchin will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions,” the Treasury Department said.

The IMF had no immediate comment. Last month, the global lender said China’s yuan was broadly in line with economic fundamentals, while the U.S. dollar was overvalued by 6% to 12%.

The Treasury statement, made after the stock trading session ended, sent S&P; 500 futures EScv1 down more than 1%, suggesting investors expect Wall Street to open on Tuesday with additional losses following Monday's drop of 3% on the S&P; 500 .SPX.

The U.S. action came after China let its currency weaken 1.4%, sending it past the key 7-per-dollar level for the first time in more than a decade. Beijing also halted U.S. agricultural purchases, inflaming a trade war that has roiled financial markets, disrupted supply chains and slowed global growth.

Even before the formal designation, Trump on Monday accused Beijing on Twitter of manipulating its currency.

“China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” Trump tweeted.

Trump had stunned financial markets last week by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1.

In its statement, the Treasury Department said the People’s Bank of China (PBOC) on Monday made clear that Chinese authorities had ample control over the yuan exchange rate despite their rejection of any claims of manipulation.

“This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis,” the Treasury statement said.

It said China’s actions violate its commitment to refrain from competitive devaluation as part of the Group of 20 industrialized countries. Treasury said it expected China to adhere to those commitments and not target China’s exchange rate for competitive purposes.

U.S. law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.

After determining a country is a manipulator, the Treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from U.S. government procurement contracts.

A U.S. dollar banknote featuring American founding father Benjamin Franklin and a China's yuan banknote featuring late Chinese chairman Mao Zedong are seen among U.S. and Chinese flags in this illustration picture taken May 20, 2019. REUTERS/Jason Lee/Illustration

The U.S. Treasury had designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was the last country to get the designation, in 1994.

Mark Sobel, a former senior Treasury and IMF official, said Mnuchin was probably ordered by Trump to issue the designation.

“It’s ridiculous that they’ve declared China a currency manipulator. They don’t have any meaningful tools to do anything about it, unless they just want to pile more tariffs on,” said Sobol, who now works with the Official Monetary and Financial Institutions Forum, a London-based think tank.

PBOC DENIES COMPETITIVE DEVALUATION

Before the U.S. designation, the People’s Bank of China (PBOC) provided an early impetus for yuan bears by setting a daily rate for the currency at its weakest level in eight months, weakening a long defense that kept the yuan stronger than 7 to the dollar.

The move was made with the blessing of policymakers to factor in market concerns around the U.S.-China trade war and its effect on China’s weakening economic growth, three people with knowledge of Chinese monetary deliberations told Reuters.

Hours before the U.S. action, PBOC Governor Yi Gang, who has been a key player in U.S.-China trade negotiations, said the yuan was now at an appropriate level given China’s economic fundamentals. He said that China would not engage in a competitive devaluation and would maintain the stability and continuity of foreign exchange management policies.

The PBOC had linked the yuan’s weakness to the fallout from the trade war, but said it would not change its currency policy and that two-way fluctuations in the yuan’s value were normal.

With the escalating trade war giving Beijing fewer reasons to maintain yuan stability, some analysts said they expect the currency to continue to weaken further to as low as 7.3 to the dollar.

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Graphic: CNY breaks 7/dollar - Aug 5, 2019 - tmsnrt.rs/2Ys0l5C

The flare-up in trade tensions has renewed global financial market concerns over how much China will allow the yuan to weaken to offset heavier pressure on its exporters.

Despite slowing economic growth over the past year amid the intensifying trade war, China has not seen a rush of capital flight, thanks to capital controls put in place during the last economic downturn and growing foreign inflows into Chinese stocks and bonds.

Graphic: EM FX and trade war - Aug 5, 2019 - tmsnrt.rs/2MF3hVt
The International Monetary Fund finds that China's currency, the yuan, has been "broadly stable" against other currencies over the last year. The yuan is pulled down by market pressures due to the slowing economy. Suggesting little intervention by China's central bank, the IMF position is at odds with the designation of China by the U.S. as a currency manipulator.