The US feels China’s yuan does not yet meet the standards for inclusion in the IMF’s basket of global currencies, US Secretary of the Treasury Jack Lew said on Tuesday.
The yuan’s inclusion in the basket, which defines the value of the IMF’s reserve assets, would add to China’s global status, while encouraging more central banks to hold the currency.
Currently, the basket includes the US dollar, the yen, the euro and the British pound, and the IMF is reviewing the composition of the basket this year.
Officials at the international lender look for a currency to be used heavily in international trade as well as freely convertible. Lew said that China had more work to do.
“While further liberalization and reform are needed for the [yuan] to meet this standard, we encourage the process of completing these necessary reforms,” Lew said in a speech at the Asia Society Northern California in San Francisco.
The yuan is already the world’s fifth most-used currency in trade, and Beijing has made almost weekly strides this year in introducing the infrastructure needed to float it freely on global capital markets.
Lew, who was returning from a trip to Beijing where he met with Chinese officials, repeated the US view that China appears to have stopped intervening to weaken its currency.
However, he said the true test of whether China had shifted policy would come when market pressure increased for the yuan to strengthen.
“We expect China to continue to refrain from intervention across different market conditions,” he said.
In a wide-ranging speech that touched on trade, regulations and international finance, Lew also warned China against blocking foreign technologies, saying this could damage US-China relations.
Lew said Washington stood ready to welcome a China-led development bank as long as it complemented existing institutions and adopted high governance standards.
US Undersecretary of State for Economic Growth, Energy and the Environment Catherine Novelli yesterday told reporters in Singapore that the US does not oppose the China-led Asian Infrastructure Investment Bank (AIIB) and understands the need to build infrastructure in Asia.
“There is plenty of room for everybody to participate in Asia. It is a huge economic space,” she said.
China in recent weeks has convinced several US allies in Europe to become founding members of the AIIB, a sign of Beijing’s rising stature.
Washington would like the AIIB to partner with existing institutions such as the World Bank and Asian Development Bank, which could push the new bank to adopt existing standards.
“I was encouraged by my conversations in Beijing in which China’s leaders made clear that they aspire to meet high standards and welcome partnership,” Lew said.
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