Financial markets need more clarity on how Chinese authorities are managing their currency, particularly the relationship of the yuan to the US dollar, IMF managing director Christine Lagarde said on Saturday.
Along with a dramatic fall in the price of oil, sharp swings in the yuan have contributed to global market volatility since the start of the year.
Bank of Japan Governor Haruhiko Kuroda told a World Economic Forum panel in Davos that China should use capital controls to stabilise its currency while keeping domestic monetary policy loose.
Asked whether she would back capital controls by China for a period, Lagarde avoided a direct reply but said: “Certainly a massive use of reserves would not be a particularly good idea ... Some of it was already used.”
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She said the market needed “clarity and certainty” about China’s exchange rate basket “in particular with reference to the dollar, which has always been the reference”. “That would be the right move to make,” she said.
Kuroda said China was right to keep monetary policy accommodative to help cushion the country’s transition from a export-led industrial economy to a demand-driven consumer economy without excessive depreciation of the yuan. “This is my personal view and may not be shared by Chinese authorities, but in this kind of contradictory situation, capital control could be useful to manage exchange rate as well as domestic monetary policy in a consistent, appropriate way.”