IMF chief says would consider yuan for SDR basket

WASHINGTON
Mon Jun 28, 2010 5:00pm EDT

WASHINGTON June 28 (Reuters) - The head of the IMF said on Monday he would like to consider putting the Chinese yuan into the basket of currencies that make up the Fund's Special Drawing Rights "the sooner the better", but its value first needed to be freely determined by the market.

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Dominique Strauss-Kahn told reporters in a news conference that he believed there would be more pressure to include yuan, also known as the renminbi, among SDR currencies as China's economic clout grows.

"This question has to be considered. I think it will be difficult to include the renminbi before the renminbi really has a market price and is in one way or the other a floating currency. But but the sooner, the better," he said.

"Because as time goes by there are more and more reasons to include other currencies in the SDR basket -- starting with the renminbi."

The IMF's Special Drawing Rights, the Fund's internal unit of account, has often been suggested as a global quasi-reserve currency alternative to the U.S. dollar. Its value is based on a basket of dollars, euros, yen and sterling.

China this month said it would resume a policy of greater exchange rate flexibility for the yuan after keeping it pegged at about 6.83 to the dollar for the past two years. The move is expected to lead to a gradual rise in the yuan's value against the dollar. (Reporting by David Lawder)

We saw this one coming several months back. Keep in mind that the new quota review and the review of the composition of the SDR basket of currencies is due in a couple of months. The G20 put pressure on the IMF to make sure they got it done by the next G20 meeting which will be in November.

Strauss-Kahn's remarks may not go down well in China, which has been irked by foreign officials' comments about its currency. China took a small step towards loosening its grip on the yuan on June 19, just in time to avoid being rebuked at a meeting of the Group of 20 wealthiest countries in the world this past weekend. Although the currency has risen just some 0.5% since the announcement, that was enough to avoid criticism for keeping the yuan artificially low to boost the economy's growth via exports.

The IMF chief did note that it was in Beijing's interest to continue revaluing the yuan and that a stronger Chinese currency wasn't a cure-all for addressing trade imbalances with the U.S. But his remarks could still raise eyebrows in Beijing.

"I don't expect things will change very rapidly. We still believe...that the renminbi is undervalued," Strauss-Kahn said.


Although he would welcome the move since China is an increasingly important player in the global economy, Strauss-Kahn said it will be hard to include the yuan in a basket of currencies that comprise the IMF's special drawing rights until the Chinese currency is allowed to float.

Special drawing rights, or SDRs, are an international reserve asset used as a unit of payment on IMF loans. The basket--currently composed of the U.S. dollar, euro, yen and sterling--is reviewed every five years, with the next one coming up at the end of 2010.

"I think it will be difficult to include the renminbi before the renminbi is really at market prices," the IMF chief said.

China's central bank chief argued a year ago that the IMF's SDRs could replace the U.S. dollar as the world's currency reserve asset and advocated the inclusion of the yuan in the basket.


Here are extracts from another article. Looks like the IMF is putting the pressure on China to do more.