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Apr 3
IMF Wants China Yuan Helps Balancing Economy
Friday, 10 June 2011 05:25

imf2The International Monetary Fund / IMF urges China to let the yuan rise further to balance the economy and called for free use of the currency in global trade.

Speaking at a press conference in Beijing, John Lipsky, the IMF chief confirms the view that the yuan could be included in the Special fund IMF (SDR) from time to time if it becomes more widely used in world trade.

Lipsky asked yuan rise higher, also known as the renminbi. The main trade partner of China that routinely said China should let its yuan currency rise to reduce the economy from exports and the domestic consumption.

"A strong renminbi will be one ingredient of a comprehensive reform package," Lipsky said, adding that China could help stabilize the world economy to sustain consumption.

"We certainly agree that from time to time the possibility of the yuan would be a candidate for inclusion in the SDR." Lipsky urged China to liberalize financial markets and make the yuan fully convertible in the end.

SDR, the internal unit of account for the IMF, the value set by the euro, yen, sterling and U.S. dollars, has often been proposed as an alternative reserve currency quasi-global to the greenback.

With trillions of dollars in investment, China has been urged for other currencies, including the yuan, to be included in the SDR. China believes that the global financial markets that are too dependent on the dollar, so too are vulnerable to changes in the American economy.

But the yuan has the criticism. China's largest trading partners say Beijing pressed tightly controlled currency to increase exports.

Lipsky said that while China has been doing well in raising domestic consumption since the crisis of 2008, Beijing still has a job to cut exports in suppressing the current account surplus.

For that, he said Beijing moves in the right direction with the aim to improve household income and build a better social safety nets in the plan 12 years as part of a grand plan China's economic development.

He noted, however, China faces short-term risk of rapid expansion in bank lending in the past two years.

There are concerns long on the market that China may be hobbled by mountains of bad debt after the local government started borrowing after the crisis period 2008 to sustain domestic economic growth.

But Nigel Chalk, IMF mission chief for China, said the risks arising from the rampant borrowing by local government of China to further make the yuan as a monetary policy tool, in addition to interest rates, and administrative measures like increasing bank reserve the necessary time set monetary policy.