FEBRUARY 8, 2011, 9:57 P.M. ET
UPDATE: IMF's Shinohara Says Yuan Not A Candidate Now For SDR
- IMF's Shinohara says that yuan does not meet conditions to join its Special Drawing Rights basket
- Says SDR inclusion requires a currency to be "freely usable"
- Adds that issue is ultimately for IMF members to decide
By Takashi Nakamichi
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--A senior International Monetary Fund official said Wednesday that China's yuan isn't a "freely usable" currency in global markets, failing to satisfy one of two conditions to become part of the basket of currencies that make up the fund's synthetic currency known as Special Drawing Rights.
"Countries have a shared view that the Chinese yuan has yet to become a widely used currency in terms of either foreign exchange trading or other financial market transactions," IMF Deputy Managing Director Naoyuki Shinohara told reporters.
There have been global calls to make such currencies as the yuan a more integral part of the global financial system to reduce the dependence on the dollar, which took on a central role as the main global reserve currency in the post World War II Bretton Woods agreement.
But there has been no clear agreement on how such a basket would work and many economists have said that China's currency management system, sharply criticized by the U.S. and other major importers of Chinese goods, is not suitable for a global financial system built on free floating exchange rates.
The IMF's executive directors said in November that China has become the third-largest exporter of goods and services on a five-year average basis and has taken steps to facilitate international use of its currency.
Although still managed, the yuan has been rising in value, and was pegged Wednesday at 6.5850 to the dollar, its strongest level on record under the current currency system.
But, they said that the yuan "does not currently meet the criteria to be a freely usable currency and it would therefore not be included in the SDR basket at that time." They urged, however, "that this issue be kept under review in light of developments."
The SDR currently includes the dollar, the euro, the pound sterling and the yen.
A former adviser to China's central bank was quoted as saying by Xinhua News Agency last week that China should consider whether to include the yuan in the SDR basket. But Yu Yongding, an economist with the Chinese Academy of Social Sciences and a former member of the People's Bank of China monetary policy committee, was also cited as saying that since this requires that the yuan be fully convertible and its exchange rate fully market-based, China should move slowly and carefully on the matter.
In an influential essay in 2009, Chinese Central Bank Gov. Zhou Xiaochuan proposed expanding the use of special drawing rights as a first step toward creating a new international reserve currency.
Shinohara added that debates about the yuan and the SDR will start from now, and that IMF member nations, not IMF officials, will decide whether to add any other currencies to the SDR.
The basket of currencies used in the SDR are valued at prevailing market exchange rates and summed to obtain the SDR's value. The IMF says the "standard basket" method best ensures the stability of the SDR in terms of the major currencies under floating exchange rates.
UPDATE: IMF's Shinohara Says Yuan Not A Candidate Now For SDR
- IMF's Shinohara says that yuan does not meet conditions to join its Special Drawing Rights basket
- Says SDR inclusion requires a currency to be "freely usable"
- Adds that issue is ultimately for IMF members to decide
By Takashi Nakamichi
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--A senior International Monetary Fund official said Wednesday that China's yuan isn't a "freely usable" currency in global markets, failing to satisfy one of two conditions to become part of the basket of currencies that make up the fund's synthetic currency known as Special Drawing Rights.
"Countries have a shared view that the Chinese yuan has yet to become a widely used currency in terms of either foreign exchange trading or other financial market transactions," IMF Deputy Managing Director Naoyuki Shinohara told reporters.
There have been global calls to make such currencies as the yuan a more integral part of the global financial system to reduce the dependence on the dollar, which took on a central role as the main global reserve currency in the post World War II Bretton Woods agreement.
But there has been no clear agreement on how such a basket would work and many economists have said that China's currency management system, sharply criticized by the U.S. and other major importers of Chinese goods, is not suitable for a global financial system built on free floating exchange rates.
The IMF's executive directors said in November that China has become the third-largest exporter of goods and services on a five-year average basis and has taken steps to facilitate international use of its currency.
Although still managed, the yuan has been rising in value, and was pegged Wednesday at 6.5850 to the dollar, its strongest level on record under the current currency system.
But, they said that the yuan "does not currently meet the criteria to be a freely usable currency and it would therefore not be included in the SDR basket at that time." They urged, however, "that this issue be kept under review in light of developments."
The SDR currently includes the dollar, the euro, the pound sterling and the yen.
A former adviser to China's central bank was quoted as saying by Xinhua News Agency last week that China should consider whether to include the yuan in the SDR basket. But Yu Yongding, an economist with the Chinese Academy of Social Sciences and a former member of the People's Bank of China monetary policy committee, was also cited as saying that since this requires that the yuan be fully convertible and its exchange rate fully market-based, China should move slowly and carefully on the matter.
In an influential essay in 2009, Chinese Central Bank Gov. Zhou Xiaochuan proposed expanding the use of special drawing rights as a first step toward creating a new international reserve currency.
Shinohara added that debates about the yuan and the SDR will start from now, and that IMF member nations, not IMF officials, will decide whether to add any other currencies to the SDR.
The basket of currencies used in the SDR are valued at prevailing market exchange rates and summed to obtain the SDR's value. The IMF says the "standard basket" method best ensures the stability of the SDR in terms of the major currencies under floating exchange rates.