(Adds Sarkozy’s actions on SDR initiative starting in second paragraph.)
Sept. 22 (Bloomberg) -- French President Nicolas Sarkozy told President Barack Obama that the yuan should be included in the International Monetary Fund’s Special Drawing Rights system, a French presidential official said.
Moving toward including the yuan in the SDR basket has been a goal of Sarkozy’s this year as France seeks to shape the international financial system during its one-year leadership of the Group of 20 major world economies. Including the yuan in the SDR, a unit of account derived from the value of the dollar, yen, pound and euro, would further integrate the Chinese currency into world markets.
The official, speaking to reporters in New York after Sarkozy met Obama, said France would push for the yuan’s inclusion in exchange for increased consumption and trade from China in order to stimulate the global economy. The official spoke on condition of anonymity in line with government rules.
The official didn’t say if a timetable for the yuan’s inclusion in the SDR was discussed. The Special Drawing Rights basket is reviewed every five years by the IMF’s executive board, and the most recent changes took effect in January.
Sarkozy proposed at a one-day seminar in Nanjing in March that the yuan should be included in the SDR. European Central Bank President Jean-Claude Trichet said then that the idea was “worth discussing.” U.S. Treasury Secretary Timothy F. Geithner at the same meeting said that “flexible exchange rate systems” and free capital flows were prerequisites for inclusion into the basket. China has neither.
France has continued to push the issue. Finance Minister Francois Baroin last month told reporters in Beijing that a working group had been set up to address issues related to the yuan’s eventual inclusion in the SDR basket.
What isn’t clear is whether China wants to be included. Last month Chinese central bank Deputy Governor Yi Gang said the yuan shouldn’t rush to join the IMF’s currency basket, according to a commentary he wrote in the Caixin Century magazine. Still, his boss, People’s Bank of China Governor Zhou Xiaochuan, floated the idea in 2009 of a new international reserve currency based on the SDR to replace the U.S. dollar.
Shen Jianguang, chief economist for greater China at Mizuho Securities Asia Ltd. in Hong Kong, who has worked at the IMF and the European Central Bank, said the push to include the yuan in the SDR basket is “a French idea” that is “meaningless for China” because the yuan needs to be convertible first.
“China wants to do it but do it at their own pace which will minimize financial turmoil,” he said.
Shen said Sarkozy could curry more favor with China by pushing Europe to give the Asian nation market-economy status, something Premier Wen Jiabao asked for last week in a speech addressing increasing Chinese investment in Europe.
“There is nothing for free,” Shen said.
The yuan slipped 0.1 percent to 6.3907 to the dollar at 12:53 p.m. today in Shanghai.
--With assistance from Michael Forsythe in Beijing. Editors: John Brinsley, Peter Hirschberg
To contact the reporter on this story: Helene Fouquet in Paris at firstname.lastname@example.org
To contact the editor responsible for this story: Peter Hirschberg at email@example.com