International Monetary Fund Beijing's move to change the mechanism for setting the yuan's daily reference rate "appears a welcome step" as it should allow market forces to play a greater role in determining the exchange rate, the IMF said yesterday. "Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets," the International Monetary Fund said. "We believe China can, and should, aim to achieve an effectively floating exchange rate system within two to three years." Referring to its consideration of whether to include the yuan in its Special Drawing Rights basket of reserve currencies, the IMF said: "The announced change has no direct implications for the criteria used in determining the composition of the basket. "Nevertheless, a more market-determined exchange rate would facilitate SDR operations [if] the renminbi were included." US Treasury The United States Treasury Department said that while it was too early to judge the full implications of Beijing's move, "China has indicated that the changes announced … are another step in its move to a more market-determined exchange rate". But it added: "We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move towards an economy that is more dependent on domestic demand, which is in China's and America's best interests. "Any reversal in the reforms would be a troubling development," it said. Goldman Sachs China's devaluation of its currency is designed to cushion it from strengthening along with the US dollar after a projected interest-rate rise from the US Federal Reserve, according to investment banking firm Goldman Sachs. "This is about the Fed lift-off most obviously and further dollar strength," wrote Robin Brooks, chief currency strategist at Goldman Sachs in New York. "It certainly makes sense for China's policymakers to buy some flexibility ahead of the Fed lift-off." South Korea South Korean Finance Minister Choi Kyung-hwan said Beijing's move was "positive for [South Korea's] exports as a large portion of shipments to China are intermediate products [and] there are not many export products in direct competition with China". Choi said his government was closely monitoring foreign exchange markets after the won fell to its lowest in four years against the US dollar after China's central bank set its daily midpoint reference even weaker than Tuesday's devaluation. India Indian Finance Secretary Rajiv Mehrishi said the move could impact exports and foreign investment flowing into India. "China seems to be moving towards flexible exchange rate … Exports from China would be cheaper. It may also impact foreign direct investment if China becomes a more attractive destination vis-a-vis India," he said. "To quantify the impact of depreciation is difficult. The Indian rupee is stronger today versus most currencies. Investors will go where the exchange rate gives them better bang for buck."