BRUSSELS (Dow Jones)--International Monetary Fund Managing Director Dominique Strauss-Kahn said Wednesday China's currency remains undervalued.
"The opinion of the IMF from this point of view is still that the renmimbi is very much undervalued," he said at a conference at the European Parliament.
Strauss-Kahn said that in economies with persistent current account surpluses--such as China, Germany, and many oil-producing countries-- domestic demand must go up.
Broadly speaking, this meant boosting growth in consumption, and in some cases, exchange rate appreciation would also play an important role, he said.
"Some currencies are obviously undervalued, especially in Asia, especially the renmimbi," he said.
The IMF chief also said the global economic recovery was stronger than some had predicted.
"The recovery is shaping up to be better than expected, and we are forecasting global growth of 4% this year," he said.
However, he said the recovery was "multispeed"-while it was "tepid" and dependent on policy support in most advanced economies, most emerging economies were already recovering "robustly" with demand in good shape to carry growth forward.
"What we need now are strategies that can restore fiscal sustainability, but that don't jeopardize the economic recovery by withdrawing support too soon," the IMF chief said.
Strauss-Kahn said a "massive" build up of reserves over the last decade had put the international monetary system under some strain.
"If countries had access to better financial insurance, the need to build up precautionary reserves could be lessened," he said, adding that the IMF's Flexible Credit Line, which provides upfront financing with no subsequent conditionality, tried to meet this need.
Strauss-Kahn said oversight of systemic and financial sector risks must be improved to help prevent future crisis and that closer international collaboration was necessary to overcome the challenges of the post-crisis era.
Speaking at the same event, Michel Barnier, the European Commissioner for Internal Markets and Services, also said better global regulation is needed for the likes of private equity, hedge funds, derivatives and credit default swaps.
European Union finance ministers couldn't reach an agreement on new rules for hedge funds and private equity firms at a meeting Monday and Tuesday after failing to find a consensus between French and U.K. views on the issue.
European Central Bank governing board member Mario Draghi, who was also at the event, said trading of credit default swaps and such derivatives should be centralized, although it wouldn't be an easy task.
"Centralization means clearness, visibility, transparency, and for many traders, many banks that trade this, that means loss of money," he said.
Draghi, who is also chairman of the Financial Stability Board, said decisions must also be made on what contracts are acceptable, on capital charges for each type of derivative, and on the issue of counterparties and oversight.
Strauss-Kahn said he was happy to discuss the idea of a European Monetary Fund and the IMF had no problem working with regional institutions. But he said the discussion shouldn't distract from the central issue of tackling Greece's fiscal problems.
"And it's because it's [establishing an EMF] not going to be done overnight that it's kind of a distraction from the real problem the euro zone is facing now with Greece," he said.
