Inefficient International Monetary Fund external policies and exchange rate practices
In the recently published 2025 External Sector Report, the International Monetary Fund (IMF) has called for China to address its high saving rates and insufficient domestic consumption to reduce its current account surplus. The aim is to foster a more balanced global economy [3][5].
However, critics argue that the IMF's recommendations are too lenient, primarily because the Fund relies on official Chinese current account data, which may understate the true surplus. Independent analyses suggest China’s actual current account surplus is substantially higher – around 4% of GDP based on customs data and adjusted income balances – compared to the IMF’s reported 2.3% [1].
This discrepancy, amounting to roughly $325 billion, arises from anomalies in reported income balance data and the strong export surplus. Critics contend that by accepting lower official estimates and not aggressively pressuring China to correct these data inconsistencies or implement more forceful policy adjustments, the IMF underestimates the scope of China's external surplus and its global spillover effects. This underestimation potentially delays needed policy responses to reduce global imbalances and associated trade tensions [1][5].
Moreover, the ESR's analysis of China is deemed its most glaring weakness. The ESR's calculation of current account norms and the net foreign asset variable could become self-reinforcing in higher norms, contrary to tackling global imbalances [8].
On the other hand, Germany's fiscal U-turn may be a positive development for reducing global imbalances, while the massive US dissaving, reflected in America's reckless fiscal policies, is a main culprit for global imbalances [6].
The IMF needs to tread cautiously on its monetary policy recommendation for China, considering the complexity of China's economic situation and the potential impact on global markets. The Fund could have substantially strengthened its report had it taken a stance on these statistical complexities and provided alternative current account gap and exchange rate valuation estimates based on these data points [10].
Meanwhile, the ESR includes a chapter on the dollar and emerging trends in the international monetary system, but the IMF should take a clear stance on whether the dollar conveys an exorbitant privilege [9]. Mark Sobel, the US Chair of OMFIF, echoes this sentiment, underscoring the importance of the IMF's role in providing clarity on these issues.
The debate surrounding the IMF's recommendations for China's monetary policy highlights the need for a more nuanced and data-driven approach to addressing global imbalances and fostering a more balanced global economy.
- The International Monetary Fund (IMF) calls for China to address its high saving rates and insufficient domestic consumption to reduce its current account surplus, as stated in the 2025 External Sector Report.
- Critics argue that the IMF's reliance on official Chinese data may understate the true surplus, with independent analyses suggesting China’s actual current account surplus is around 4% of GDP.
- This discrepancy, amounting to roughly $325 billion, arises from anomalies in reported income balance data and the strong export surplus, leading critics to contend that the IMF underestimates the scope of China's external surplus.
- The ESR's analysis of China is considered its most glaring weakness, with critics suggesting that the Fund's calculation of current account norms could become self-reinforcing in higher norms, contradictory to tackling global imbalances.
- The debate surrounding the IMF's recommendations for China's monetary policy underscores the need for a more nuanced and data-driven approach to addressing global imbalances and fostering a more balanced global economy.
- Mark Sobel, the US Chair of OMFIF, highlights the importance of the IMF's role in providing clarity on these issues and taking a clear stance on whether the dollar conveys an exorbitant privilege.
