BEIJING—China’s currency isn’t undervalued despite this week’s decline against the U.S. dollar, but the world’s second-largest economy still needs to adopt a fully market-based exchange-rate system within three years, the International Monetary Fund said Friday.
This week, China introduced changes to make trading in the yuan more market-driven. Economists and currency traders said it is an improvement over the previous system since opening rates are more explicitly linked to the prior day’s closing level.
But the system still leaves authorities with significant discretion in setting rates, they added. The yuan fell 2.9% against the U.S. dollar, its largest drop in years, during the week.
The IMF said it welcomed the new approach, which follows the yuan’s recent double-digit appreciation against the dollar, but added that China needs to do more. Officials said the new trading system would have no direct effect on China’s bid to have its currency included…
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