Currency devaluation has been a recent point of contention between China and the United States, adding to tensions between the world's two largest economies locked in a tit-for-tat trade war. And the issue reverberated at the annual meetings of the International Monetary Fund (IMF) and World Bank in Bali.
The yuan has plunged more than 9 per cent against the US dollar in the past six months, provoking claims from the US that China is engaging in currency manipulation to bolster its competitiveness. Beijing has roundly denied the accusation as "groundless speculation".
Yesterday, economic chiefs from countries, including China and the US, pledged to refrain from competitive currency devaluations.
The 24-member steering committee of the IMF said in its communique that strong fundamentals, sound policies and a resilient international monetary system are crucial to the stability of exchange rates, and contribute to sustainable growth and investment. "Flexible exchange rates, where feasible, can serve as a shock absorber," the International Monetary and Financial Committee (IMFC) said.
"We recognise that excessive volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes."
China's central bank governor Yi Gang said his country will continue to let the market play a decisive role in the formation of the yuan exchange rate. "We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions."
US Treasury Secretary Steven Mnuchin said Chinese officials had informed him that a further depreciation of the yuan was not in Beijing's interest.
WON'T BE USED AS A TOOL
We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.
CHINA'S CENTRAL BANK GOVERNOR YI GANG, saying his country will continue to let the market play a decisive role in the formation of the yuan exchange rate.
"The currency issue ... will be part of our trade discussions. We want to make sure that depreciation is not being used for competitive purposes in trade," he added.
The US Treasury is set to release a closely watched report on currency manipulation this week, and Mr Mnuchin has been facing pressure from the White House to name China a currency manipulator. But sources told Bloomberg that Treasury staff have advised him that China is not manipulating the yuan.
The IMF has also dismissed such claims, with managing director Christine Lagarde maintaining that the yuan's decline was merely a reflection of the strong US dollar. On Friday, IMF's deputy director of the Asia and Pacific Department Markus Rodlauer said: "According to our framework, the exchange rate of the renminbi (yuan) is not out of line. It is broadly in line with the fundamentals."
Recent trade disputes also cast a long shadow on the Bali meetings, which saw repeated calls to defend and update the multilateral trading system to ensure that trade gains are more evenly distributed.
The IMFC said: "We recognise the need to continue to step up dialogue and actions to mitigate risks and enhance confidence in international trade, including ways to improve the World Trade Organisation to face current and future challenges... Free, fair and mutually beneficial goods and services trade and investment are key engines for growth and job creation."
Ms Lagarde told reporters: "My message is: steer the boat, don't drift, and sail together, because we will be stronger together."