While the yuan traded at levels 3 per cent to 12 per cent below the level "consistent with medium-term fundamentals and desirable policies" last year, recent appreciation in the currency means it's no longer undervalued, according to the fund.
The conclusion on the yuan repeats an assessment offered in May and contradicts the US position that the currency remains undervalued. The IMF is separately reviewing this year whether the yuan is widely-enough used to warrant reserve-currency status.
The US dollar is currently trading "moderately above" a level consistent with fundamentals, the IMF said.
"At best, inaction on excess imbalances would mean a lost opportunity, settling for a mediocre global outcome in terms of growth and stability," IMF First Deputy Managing Director David Lipton said in a statement. "Insufficient action to reduce excess deficits would mean additional risks to financial stability."
Along with China and Germany, Lipton flagged South Korea as a country that should reduce its current-account surplus. He also noted the deficits in Britain, Brazil and France.
Correcting the global imbalances requires an adjustment by both surplus and deficit nations, which should take steps to boost growth in domestic demand, he said.
"Adjustment of real exchange rates, though it would not suffice on its own, is also essential, and policies should facilitate rather than obstruct that adjustment," Lipton said.
Recent currency volatility has been a "natural" response to shifts in commodity prices, especially oil's plunge, as well as divergences among economies in terms of growth, inflation and monetary policy, he said.
The IMF report estimates the US dollar may have been overvalued by as much as 10 per cent last year. The fund recommends the federal government aim for a primary budget surplus of about 1 per cent of gross domestic product over the medium term. The IMF also suggests structural reforms to improve productivity and labour-force growth.
- Bloomberg
