DAVOS, SWITZERLAND – Financial markets need more clarity on how the Chinese authorities are managing their currency, particularly the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday.
Asked at a panel discussion in Davos whether she would back capital controls by China for a period, she avoided a direct reply but said: “Certainly a massive use of reserves would not be a particularly good idea … Some of it was already used.”
She said that the market needed “clarity and certainty” about China’s exchange rate basket “in particular with reference to the dollar, which has always been the reference.”
“That would be the right move to make,” she added.
Bank of Japan governor Haruhiko Kuroda said his personal view was that capital controls would be an appropriate way for China to reconcile its need to keep domestic monetary policy loose while stabilizing its currency.