Li Vows Reforms To Help Yuan Be World’s 5th Reserve Currency
March 24, 2015,
Chinese Premier Li Keqiang on Monday asked the International Monetary Fund (IMF) to include the Chinese currency in the special drawing rights (SDR) basket, endorse the yuan as a global reserve currency alongside the dollar and euro.
Li met IMF Managing Director Christine Lagarde in Beijing on Monday.
State news agency Xinhua quoted Li as saying “China will speed up the basic convertibility of yuan on the capital account and provide more facility for domestic individual cross-border investment and foreign institutional investment in China’s capital market”.
Chinese Premier Li Keqiang (R) meets with Christine Lagarde, managing director of the International Monetary Fund (IMF), in Beijing, capital of China, March 23, 2015 [Xinhua]
Including the yuan in the SDR system would allow the IMF to recognize the ascent of the world’s second-biggest economy while aiding China’s attempts to diminish the dollar’s dominance in global trade and finance.
In late 2015, the IMF will conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves.
SDRs are international foreign exchange reserve assets. Allocated to nations by the IMF, an SDR represents a claim to foreign currencies for which it may be exchanged in times of need.
Although denominated in US dollars, the nominal value of an SDR is derived from a basket of currencies, with, specifically, a fixed amount of Japanese yen, US dollars, British pounds and euros, without RMB.
China would need to satisfy the Washington-based lender’s economic benchmarks and get the support of most of the other 187 member countries.
At the time of the last SDR review in 2010, the RMB met the export criterion, but was assessed as not meeting the “freely usable” criterion. Since then there have been a number of developments in the RMB’s international use, and the upcoming review will take stock of these developments, IMF Chief Lagarde said on Friday.
Li told Lagarde, “China will push forward financial reform for the real economy and prevention of risk. China will develop private, small and medium banks to provide better support for small businesses”.
“China hoped to, through the SDR, play an active role in the international cooperation to maintain financial stability and promote the further opening of China’s capital market and financial area,” he added.
The yuan became the world’s No. 2 currency for trade finance globally in 2013, and overtook the Canadian and Australian dollars to enter the top five world payment currencies in 2014, according to global transaction services organization SWIFT.
China said the yuan has also been used as a reserve currency in some countries and regions.
TBP and Agencies The BRICS Post