G20 considers wider role for China’s yuan

G20 leaders have moved towards agreeing that China’s currency should have a wider role in global finance.

The G20 is to study whether to include the Chinese yuan within the basket of currencies that make up the IMF’s Special Drawing Right.

The Special Drawing Right, or SDR, is a quasi currency used within the IMF by its member countries.

Some economists believe the SDR could one day become a global reserve currency alongside the US dollar.

French president Nicolas Sarkozy and Finance ministers at the conference in China

Evolution

Speaking at the G20 summit in Nanjing, French President Nicolas Sarkozy suggested that given the importance of emerging economies such as China to global growth, their currencies should be added to the SDR basket.

“Without rules and supervision, the world runs the risk of being condemned to increasingly serious and severe crises,” said President Sarkozy.

“It is clear that we must evolve toward a more flexible exchange rate system that will allow us to withstand shocks,” he added.

His comments were backed by US Treasury Secretary Timothy Geithner who said he supported a change to SDR composition.

“Over time, we believe that currencies of large economies heavily used in international trade and financial transactions should become a part of the SDR basket,” he said.

– BBC

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