Having failed to prevent its close allies from joining the China-led Asian Infrastructure and Investment Bank (AIIB), Washington is now trying to spoil Beijing's attempt to enlist its currency yuan (also known as RMB) in the IMF's basket of SDR virtual currency. The Special Drawing Right (SDR) basket of currencies of the International Monetary Fund (IMF) currently includes US dollar, euro, Japanese yen and British pound sterling.
Critics are saying that the US is behaving like a bad loser. Following its diplomatic reversal, Washington is looking at Beijing's AIIB initiative as a potential rival to the World Bank and the Asian Development Bank which are dominated by the US and Japan. Â
After Beijing scored a diplomatic coup by attracting over 50 countries, including key US allies, a section of the Western media is spewing inspired stories suggesting that Beijing was now facing what they called a "daunting task" managing a multilateral institution for the first time with so many members with different cultural and financial background. The fact is that AIIB is far from being ready for formal launching and its terms of reference and other necessary documents are in the process of finalising by a group of experts with vast experience in the World Bank and other institutions. So these suggestions appear too hasty and premature.
WASHINGTON'S IRRITATION: Washington's irritation appears quite visible and there are reasons too. For example, countries signed for joining AIIB include four of the five UN Security Council members, 18 out of 34 members of the Organisation for Economic Co-operation and Development (OECD) and all 10 members of the Association of Southeast Asian Nations (ASEAN). Only the US and Japan are conspicuous by their absence. Â
China, also pointed out by the Western media, already plays leading roles in the Shanghai Cooperation Organisation (SCO) that links it with Russia and Central Asian countries and the BRICS (Brazil, Russia, India, China and South Africa) bloc.
However, Peking University's HSBC Business School's Christopher Balding has doubts and says that AIIB "is on a whole different level… There is a lot more money, this is countries that have a lot more influence and expect to be taken a lot more seriously." With democratic and market systems they will have strong views on issues such as the environment, human rights, corruption and lending, he added. Balding has also been quoted by AFP as saying: "The more countries like this that you bring on board, the tougher it's going to be for you to control and the more input those people are very reasonably going to expect to have."
Other reports from China suggest that these points are being taken into consideration by the sponsors. For example, the Global Times newspaper (part of People's Daily Group) in an editorial said: "The more countries and regions join, the harder it will be for us to achieve a consensus in the future." Beijing has already expressed its willingness to give up veto power over the bank's decisions and that seems to have its own appeal.
SHOCKS FROM G-7: Reverting to China's attempt to enter its currency into IMF's basket of SDR currencies. In a report from Brussels, Reuters says that US Treasury Secretary Jack Law, during a visit to Beijing in late March, thought that the yuan was not yet ready to join the virtual currency that defines the value of the IMF's reserves used for lending to countries in financial difficulty. Â
However, opinions vary. The German central bank's executive board member Joachim Nagel at a high-level forum in Boao, on the Chinese island of Hainan, said around the same time: "The German side supports China's goal to add the RMB (yuan) to the SDR currency basket based on existing criteria." He has pointed out that the upcoming review (in November) could be a good opportunity to introduce yuan into the basket and added: "We appreciate China's recent development and progress towards liberalisation."
Meanwhile, the United States policy-makers who have been opposing China's entry into the IMF's basket of SDR currencies may have been shocked to learn that European members of the Group of Seven major industrialised countries, namely Germany, Britain, France and Italy, are in favour of adding yuan this year to the SDR basket of currencies.  Â
London is also keen to secure its role as an offshore centre for international trading in yuan and has publicly expressed its opinion for China's admission to the SDR. Chief Economic Adviser at the UK Treasury, David Ramsden has said that much has changed since the make-up of the virtual currency was last reviewed in 2010 and including the yuan was now a "very live issue."
Chinese news agency Xinhua in a report from Beijing says in its latest bid to enlist yuan as a virtual SDR currency, Chinese Premier Li Keqiang asked IMF chief Christine Lagarde who was on a visit, to include the yuan in its SDR basket and also pledged to speed up its basic convertibility. The Chinese PM hoped to play an active role in international efforts to maintain financial stability, it added.
It may be pointed out that the Chinese yuan has already become the world's fifth most used trade currency this year. Beijing has made strides to introduce infrastructure necessary to float the yuan freely on global capital market.
Analysts say that yuan would be the first emerging market currency to join the SDR making another stage in China's rise as a global economic player and requiring the United Stated to accept a dilution of its unrivalled power in international finance. Incidentally, the US dollar had dislodged the British pound sterling as the main world currency following the WWI in early 20s of the last century and has since been reigning the world economy as the dominating currency. As they say, habits die hard and the US policy-makers are finding it difficult to accept rising China's currency, the yuan, to even come closer, let alone replace, the once mighty dollar.
Economic analysts say, the US dollar is going to play a major role in the world of finance for quite some time to come and the yuan has in no way come closer to replace it as the world currency. However, like other major currencies except the US dollar, such as euro, Japanese yen and the British pound sterling, the Chinese yuan has reached a stage where it could play a complimentary role in the global economy.
Whether one likes it or not, this change has become inevitable in the evolutionary process and barring any accident or failure in the Chinese policy-making apparatus to follow up its promise to speed up reforms process and convertibility, it may stay that way.
 sayed.kamaluddin@gmail.com
US jittery over China\\\'s attempt to play major league at IMF
Sayed Kamaluddin | Published: April 10, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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