Chinese Premier Li Keqiang asked the International Monetary Fund’s (IMF) Managing Director Christine Lagarde on Monday to include China’s yuan in its Special Drawing Rights (SDR) basket, China’s state-run Xinhua news agency reports.
According to the report, Premier Li told Lagarde that China would “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.”
Li added that 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,” according to the report.
Premier Li’s pitch for inclusion of the yuan in the SDR basket comes as the Chinese-led Asian Infrastructure Investment Bank (AIIB) — a potential rival to the Western-led IMF and World Bank — has gained much traction, as the bulk of the U.S.’s Western allies have flocked to join the bank, much to the embarrassment of the Obama administration.
Li’s request to Lagarde followed a similar approach by Chinese Central Bank Governor Zhou Xiaochuan on Sunday during the China Development Forum in Beijing.
On Sunday, Zhou cited examples such as allowing for foreign investors to trade Shanghai-listed stocks through a link with Hong Kong’s exchange and giving overseas funds expanded access to Chinese stocks and bonds.
Zhou added that rules on Chinese citizens investing as individuals overseas would be relaxed, and that there would be other measures taken this year to increase the yuan’s convertibility under the capital account.
For more than five years, Zhou has pushed for the yuan to be added to the SDR basket, a move that would pave the way for it to become a reserve currency, aiding China’s attempts to diminish the dollar’s dominance in global trade and finance. The nation’s ascent to become the world’s second-largest economy has bolstered his case.
The IMF created the SDR in 1969 to support the Bretton Woods system of fixed exchange rates after supplies of gold and dollars proved inadequate. Owning SDRs gives countries a claim to the four currencies in the basket: the dollar, euro, yen and U.K. pound.
The composition of the SDR basket is reviewed every five years. In 2010, the IMF decided that the yuan couldn’t be added because it wasn’t “freely usable.” Zhou used the panel Sunday to tell Lagarde how the currency is getting freer.
Following Zhou’s comments on Sunday at China Development Forum, Lagarde said that ‘the Chinese yuan “clearly belongs” in the Special Drawing Rights (SDR) basket and that the IMF would work with China to that end,’ according to Bloomberg.
“Timing is something that we will be discussing amongst ourselves but I think we welcome this introduction,” Lagarde said on Sunday.
Lagarde said on Friday that China’s yuan at some point would be incorporated in the International Monetary Fund’s Special Drawing Right (SDR) currency basket.
“It’s not a question of if, it’s a question of when,” Lagarde said during a question and answer session following a speech at Fudan University on Friday.
Lagarde told Li on Monday, following their meeting, that the IMF attached importance to relations with China and will maintain communication and cooperation with China on the SDR review, the Xinhua report said.
Lagarde hailed China’s financial reform, saying it will be example for other countries and help global financial stability, according to the Xinhua report.