IMF Says China Should Be More Flexible on Yuan

China should be more flexible on its currency and encourage more domestic consumption, a senior International Monetary Fund (IMF) official said on Wednesday, as pressure builds on Beijing to revalue the yuan.

The yuan is pegged to the U.S. dollar at a level that supports Chinese exports, raising concerns of global economic imbalances where the West runs up huge debts to fund consumption of Chinese-made goods while Asia racks up sky-high savings.

"Currency flexibility is important," IMF deputy managing director Murilo Portugal told a business gathering in Sydney.

"There is also a need to move towards generating more internal demand and not just depend on exports," he said when asked if China needed to be more flexible with its currency.

The United States and other countries complain that China is keeping its currency undervalued, unfairly helping its exporters.

The IMF has for some time argued that China's exchange rate is too low and this year IMF chief Dominique Strauss-Kahn said the yuan was "really significantly undervalued."

The IMF expects Asia, especially China, to lead the world in the current economic recovery.

Portugal, who expected global imbalances to widen in the medium term, said China needed to invest more in its social sector and reform its financial sector.

Likewise, the United States also needed to invest in the tradeables sector, rather than depend on domestic consumption to help its way out of an economic slump, he added.