China \'won\'t Be Found\' A Currency Manipulator, Bank Lobby Group Says

China's central bank is not manipulating the yuan's exchange rate but the ongoing tensions between Beijing and Washington will be a long-term game, according to the president and CEO of The Institute of International Finance, a global association of the financial industry.

The sell-off in the yuan is in some ways a reversal of the strength in the Chinese currency since 2016, Tim Adams told CNBC at the IIF Annual Membership Meeting in Bali, Indonesia on Friday.

"In fact, we're back to where we were in 2016. Look, their economy is weakening, they're running a more accommodative monetary policy, they have a flexible exchange rate, you would expect their currency to weaken," he said. "I suspect they won't be found a manipulator. I don't think they are manipulating the exchange rate."

When policy is said to be accommodative, it means the central bank is making it cheaper for businesses and households to borrow in hopes that they will increase spending and lift the economy.

Adams, who previously served as Under Secretary for International Affairs at the U.S. Treasury Department, added that the yuan could decline further if the U.S. Federal Reserve continues to hike interest rates, which would potentially make the greenback stronger.

The U.S Treasury Department is set to release a semiannual report on foreign exchange rate practices and recent media reports suggest that Beijing has not been labeled a currency manipulator.

Treasury Secretary Steven Mnuchin also met with the People's Bank of China (PBOC) governor, Yi Gang, on Thursday at the IMF and World Bank annual meetings in Indonesia but details about what they discussed was sparse.

The on-shore yuan has steadily weakened from levels near 6.2607 against the U.S. dollar in April this year, to trade around 6.8990 on Friday morning.

Recently, China's central bank cut the amount of reserves held by most banks. Experts said that could be an indication that Beijing is getting nervous about a long-drawn trade war with the U.S.

The PBOC's decision will result in an injection of 750 billion yuan ($109.2 billion) in cash into the banking system but the central bank maintained that its monetary policy is still prudent and neutral — not accommodative.

Adams said he expected the PBOC to do more to stabilize the Chinese economy if it weakens further due to external factors such as the ongoing trade skirmish between the U.S. and China.

Washington and Beijing have both applied tariffs on some of each other's imports in recent months. Adams said the issue will not be resolved any time soon. He explained that the U.S. wants concessions from Beijing that extend beyond trade and include ways to restructure the Chinese economy, a host of military considerations, as well as issues around North Korea and the Korean peninsula.

Complicating the matter further is Beijing's industrial policy Made in China 2025, where the country is making a major push to catch up with the West in developing high-end technologies such as robotics and semiconductor.

"I think China 2025 complicates the negotiations because China does want more domestic content. They do want to bring a lot of that production onshore and produce for their domestic market," Adams said, adding that such a goal "runs counter to opening their markets to outside companies."

Ultimately, he said, China will have to open up market access to foreign firms before an agreement can be reached.

"I think people need to buckle up and get ready. This is a long, long-term process."

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