President Donald Trump, who earlier this week urged the Federal Reserve to cut interest rates to weaken the dollar, kept up his attack on Friday on China’s currency practices. | Tasos Katopodis/Getty Images finance & tax New IMF report doesn’t back Trump’s currency manipulation charge against China

The International Monetary Fund on Friday provided little or no support for President Donald Trump’s assertion that China is manipulating its currency for an unfair trade advantage.

In an annual review of China’s economic policies, the IMF said Beijing actually took steps last year to prop up the value of its currency after the renminbi declined against the dollar between mid-June and early August 2018.


Overall, the currency “was broadly stable” in the past year, depreciating by just 2.5 percent against a basket of foreign currencies used as a benchmark, the IMF said.

IMF staff concluded the renminbi's value in 2018 was "broadly in line with medium-term fundamentals and desirable policies, i.e. not significantly over- or undervalued," James Daniel, the IMF's mission chief for China, told reporters on a call.

The analysis, which went to the IMF executive board in July, was publicly released just four days after U.S. Treasury Secretary Steven Mnuchin made the surprising announcement that he had formally designated China as a currency manipulator under U.S. law — a decision that was widely seen as ratcheting up the U.S.-China trade war.

Mnuchin took that step after the People’s Bank of China allowed the managed exchange rate to depreciate beyond 7 renminbi to the dollar for the first time in 11 years.

A weaker currency gives China an export advantage by reducing the price of its goods for foreign buyers. It also has the effect of discouraging imports by increasing their costs.

The Chinese central bank’s decision followed Trump’s announcement last week that he was imposing a 10 percent tariff on another $300 billion worth of Chinese goods effective Sept. 1. That put downward pressure on the value of the renminbi, the official name of China’s currency, which is denominated in yuan. Trump has already imposed a 25 percent duty on $250 billion worth of Chinese goods.

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Since then, the currency has fluctuated around the seven-to-the-dollar rate. On Friday, China's central bank set the official midpoint reference value for the yuan at 7.0136 per dollar — the weakest level since April 3, 2008.

Daniel said the IMF continues to encourage China to move to a more flexible exchange rate, meaning it should intervene less in currency markets to either support or depress the value of the yuan.

"They've been making progress in this regard and we hope it will continue," he said, adding the People's Bank appeared to engage in little intervention last year.

In the report, the IMF estimated that Trump's original threat this summer to impose a 25 percent duty on $300 billion worth of remaining Chinese goods would have knocked about eight-tenths of a percentage point off of Chinese growth. Now that Trump has indicated he would impose a 10 percent duty instead, the decrease would be about three-tenths of a percentage point, Daniel said.

To help offset that decline, China should consider a "small" fiscal stimulus program aimed at low-income households to increase domestic demand, while also taking steps to reform its economy and open its market to more foreign competition, Daniel added.

The U.S. decision to label China a currency manipulator was “foolhardy,” Mark Sobel, a former Treasury Department official who is U.S. chairman of the Official Monetary and Financial Institutions Forum, said this week on the group’s web page.

“The Trump administration now argues that because China is not acting to prop up its currency in the face of downward market pressures, China is guilty of ‘manipulation’,” Sobel said.

“Put differently, it seems as if the Trump administration is designating China because it wants China to ‘manipulate’ its currency up, rather than let it fall in response to market forces set off by the president’s own tariff pronouncements," Sobel continued.

Trump, who earlier this week urged the Federal Reserve to cut interest rates to weaken the dollar, kept up his attack on Friday on China’s currency practices.

“We called them on manipulation and they brought their numbers back and they brought them back rapidly and they were able to do that because they manipulate," Trump said. "It's called monetary manipulation. Not good."

