WASHINGTON: The Interna­tional Monetary Fund (IMF) said on Wednesday that China’s move to allow a greater role for markets in determining the value of its currency was “a welcome step.”

The Fund in a statement also urged Beijing to adopt a floating exchange rate system within two to three years.

The move would “allow market forces to have a greater role in determining the exchange rate. The exact impact will depend on how the new mechanism is implemented in practice,” the IMF said.

The Fund noted that greater exchange rate flexibility was important for China, which was trying to give market-forces a decisive role in its economy and was rapidly integrating into global financial markets.

The surprise reform on Tuesday caused the currency’s biggest one-day loss in two decades and triggered a wave of criticism from US lawmakers and industries, which fear that cheaper Chinese exports would hurt their interests.

But the US Treasury Depart­ment asked Beijing to proceed quickly toward market-based reforms that would allow the yuan to strengthen as well as weaken.

The IMF in May said the yuan was trading near its fair value, and after Tuesday’s reform it predicted that China was moving towards a bigger overhaul of its currency regime.

Published in Dawn, August 13th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play