China to boost IMF funding

LONDON – China will invest in a bond denominated in Special Drawing Rights (SDRs) as part of efforts to increase the resources of the International Monetary Fund (IMF), a senior central bank official said on Sunday.

‘Our contributions to IMF’s fund-raising will come in the form of an SDR bond,’ Hu Xiaolian, a vice governor of the People’s Bank of China, told a media briefing.
‘We are in discussions with the IMF,’ she added at the briefing held ahead of a meeting yesterday with British officials including finance minister Alistair Darling.
Hu, who also heads the State Administration of Foreign Exchange, was cool about the prospects of the renminbi Chinese currency playing a greater role in international money markets or trade.
‘It’s not simply a case of a country wanting to internationalise a currency. It needs the recognition of the market and the confidence of investors in the country’s policies,’ Hu said.
A senior Russian government source said in March that China and other emerging nations backed Russia’s call for a discussion on how to replace the dollar as the world’s primary reserve currency.
Bankers assume that about two-thirds of China’s nearly US$2 trillion in reserves is parked in dollar assets, primarily US government and other bonds.
China’s huge markets and growing economy make it an increasingly influential force in global economics.
British Prime Minister Gordon Brown said during April’s G20 summit in London that China would contribute US$40 billion to the IMF, part of a tripling of the IMF’s resources to a total of US$750 billion to enable it to tackle the global financial crisis.
The IMF created SDRs in 1969 as a way to support its 185 member states. They are allocated according to members’ quotas.
Earlier this year, the IMF proposed issuing bonds denominated in SDRs as one way that countries could add to the Fund’s resources and minimise foreign exchange risks.
Any decision by a country to contribute to IMF resources through an IMF issued bond first needs to be considered by the IMF board, which is widely expected to approve the move.
Hu announced last month that China had almost doubled its gold reserve, from 600 tons in 2003 to the current level of 1 054 tons, a move seen as an attempt to diversify the investment risk against a depreciating US dollar.
Hu said China had been buying gold in its domestic market over the past five years, but had only recently refined this up to a standard high enough to count as a reserve. She said China would keep markets informed of further increases.
‘We will continue to announce our gold reserve,’ Hu said.
-Nampa-Reuters