WASHINGTON: China does not want to bend the rules in its favour to include the yuan in the IMF’s basket of major reserve cur­­rencies, the No. 2 official at the IMF said.

Beijing tightly controls the yuan’s movements and has strong capital controls, but it is pushing for increased use of the currency for trade and investment as part of a long-term strategic goal to reduce dependence on the dollar and to raise its global economic clout.

That push has centred on the Special Drawing Rights, a basket that now contains dollars, yen, pounds and euros and serves as the IMF’s main unit of account.

The yuan’s inclusion as the first emerging market currency in the basket would mark another stage in China’s rise as a global economic player. The yuan is the world’s fifth most-used currency for trade.

The IMF, which is due to review the basket’s composition later this year, must deem any new currency “freely usable,” or convertible — seen as a key obstacle for the yuan, also known as the renminbi.

But the Fund also could change its criteria, or have a phased entry for the renminbi after it meets the standards, as some officials have suggested.

“I can tell you that the Chinese have been quite clear in saying that they understand the broad rules that apply, and they wish to qualify under the current criteria,” IMF First Deputy Managing Director David Lipton said in an interview during the spring meetings of the IMF and World Bank in Washington.

“That said, the world changes, and so the specific measurements that you make, of what constitutes ... freely usable ... has to change as life in capital markets changes,” he added.

Chinese economic reform plans, including opening up its capital account and deepening its financial markets, have set Beijing on the path to inclusion in the SDR basket, IMF Managing Director Christine Lagarde said this week.

And China’s central bank governor said Beijing would accelerate reforms to the yuan to push for inclusion in the SDR, including reducing intervention in domestic currency markets, the official Xinhua news agency reported on Saturday.

The IMF’s 24-member board is scheduled to make the final decision on the yuan at a formal meeting. When asked whether it could push the decision to next year, Lipton said that if the IMF agrees to something, “ways can be found.”

“That said, our aim is to have the review this year, and to make a determination,” he said. “And to give the Chinese the opportunity to take steps, if they wish, to qualify for inclusion.”

Published in Dawn, April 19th, 2015

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