WASHINGTON (AFP) - Pressure mounted on China to allow its currency to float freely as the IMF's top official urged Chinese authorities to make the move now, while their economy is booming.
"We think there is room (to) maneuver to start moving ... toward a more flexible exchange rate," IMF Managing Director Rodrigo Rato told a press briefing here ahead of the annual meeting of the IMF and its sister institution, the World Bank.
"We think that precisely because it's a moment of strong growth in the Chinese economy that this is a very good moment to do it."
Chinese finance officials are expected to encounter similar appeals on Friday when they confer here informally with finance ministers and central bankers from the Group of Seven leading industrialized countries.
The G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- convenes regularly. But analysts here have said the first-time presence of China during part of the meeting Friday means the G7's final statement could carry greater weight than in the past.
US Treasury Secretary John Snow this week made it clear that the G7 would "press" China on the currency question, adding that Chinese progress toward greater exchange rate flexibility had been "unsatisfactory."
But Chinese authorities, who have so far resisted pressure for a floating currency, may escape a severe grilling at the G7 meeting as rising oil prices are likely to push the issue into the background, analysts in Beijing predicted.
The United States and its main trading partners maintain that the yuan, pegged to a weak dollar, makes foreign goods too expensive -- and thereby less competitive -- in China while leaving Chinese exports unfairly cheap in foreign markets.
A free floating yuan, according to some analysts, could boost US exports and thereby help reduce the massive US current account deficit, which Rato has characterized as a threat to the world economy.
The fear is that a sharp correction in the current account, a broad measure of foreign trade, could occur if foreign investment flows into the United States dry up, as investors seek other outlets.
According to one scenario, that could drive down the dollar and trigger a rise in US interest rates, dampening growth in the United States and elsewhere.
Rato said China should now take advantage of a growth rate expected to hit nine percent this year to allow greater flexibility in its exchange rate mechanism.
But he stressed that the government need not relinquish its authority to cope with macroeconomic disruptions.
"It doesn't mean it should abandon its capacities to defend itself in the capital account," he said.
"It would mean that with a more flexible system it would be able to be more stable so as to absorb external shocks."
China's central bank Governor Zhou Xiaochuan and Finance Minister Jin Renqing will travel to Washington just days after crude oil futures smashed the 50-dollar barrier for the first time.
That may divert attention away from the yuan, analysts predicted in Beijing, who said the final statement would likely avoid direct attacks on China's currency policy.
At most, it may contain a reiteration of calls made at similar meetings in the past year for "more flexibility in exchange rates," a message aimed not only at China's peg but Asian forex interventions as well.
China has pledged to move to currency flexibility eventually. But in the meantime Beijing's attention has shifted to reining in breakneck economic growth rates through administrative measures and perhaps tighter monetary policy.
The IMF in its twice-yearly World Economic Outlook report said risks of overheating were still evident in the Chinese economy.