The International Monetary Fund (IMF) welcomed China's move to improve its foreign exchange formation system and said a more market-oriented exchange rate would facilitate its market opening and flexibility.
According to an IMF statement on Tuesday, the new mechanism for determining the central parity of the RMB announced by the People's Bank of China (PBOC) appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate.
The IMF argued that 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.
In addition, it believed China has the ability to achieve an effectively floating exchange rate system within two or three years.
The PBOC said the RMB's central parity has deviated from its actual market rate "by a large extent and for a long duration," therefore, the latest move could help bridge the previously accumulated differences between the central parity rate and the market rate.