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Asean Affairs  18 November 2010

A new Asiawide currency?

By  David Swartzentruber
AseanAffairs     18 November 2010

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Last week Thai Prime Minister Abhisit Vejjajiva, concerned about the effects of his country’s soaring currency, the baht, due to massive capital inflows, proposed the use of the Chinese yuan as a major regional trading currency.

However, news from other parts of the world indicate that this may not be going to happen soon. The International Monetary Fund (IMF) said China’s yuan does not currently meet the “freely usable” criteria required for inclusion in its Special Drawing Rights valuation basket made up of the dollar, euro, yen and the pound.

In an e-mailed statement, the IMF directors urged the issue be kept under review which also signaled that the fund will begin an examination of the indicators used to select currencies in 2011. The IMF this week lowered the weights of the greenback and yen in the valuation basket for the SDR, its unit of account, and increased that of the euro based on the currencies’ share of global trade.

“Although 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, the Chinese renminbi doesn’t currently meet the criteria to be a freely usable,” the Washington-based IMF said.

The yuan has gained 2.8 percent versus the greenback after China scrapped a two-year peg on June 19 as policy makers responded to accelerating inflation and pressure from the U.S. to allow appreciation.

The Group of 20 nations will discuss including China’s yuan in the currency basket for SDRs when it meets next year in France, Yonhap News reported this month, citing South Korean officials it didn’t identify.

Robert Mundell, an economics professor at Columbia University and a Nobel laureate, said in June in Hong Kong that the IMF should consider adding the yuan to the SDR basket. Goldman Sachs Group Inc.’s chief global economist, Jim O’Neill, said in April that the Chinese government may let its currency become free floating within five years.

Paul A. Ebeling, Jnr

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