IMF official out this weekend with comments on the recent developments in China
Carlo Cottarelli, an executive director, said China’s economic slowdown and a sharp fall in its stock market herald not a crisis but a “necessary” adjustment for the world’s second biggest economy
“Monetary policies have been very expansive in recent years and an adjustment is necessary,
It’s totally premature to speak of a crisis in China
China’s real economy is slowing but it’s perfectly natural that this should happen … What happened in recent days is a shock on financial markets which is natural”
Cottarelli said the IMF would discuss in coming months with Chinese authorities their decision to weaken the currency.
China is eager for the yuan to join the IMF’s Special Drawing Rights basket of currencies. But the fund is considering extending the current SDR basket by nine months until September 30, 2016.
Reuters carries more here
This is shaping up to become a major case of delayed gratification.
Just in from the IMF is confirmation that if China’s renminbi joins the elite basket of currencies that make up its own de-facto currency, the special drawing rights, it won’t actually do so until September next year.
The IMF’s board is due to decide in November whether or not to include the RMB in the basket, an honour that Chinese authorities prize and at least part of the motivation for last week’s moves by China’s central bank to give the market a bigger say in setting the value of the currency
But rather than roll out the new basket on January 1 as is customary, the IMF’s board has backed a staff recommendation that it would be more prudent to do so nine months later.
The International Monetary Fund is backing China’s new regime for setting the fix each day, adding that it hopes China will implement a floating exchange rate within two to three years.
The IMF called the new mechanism, which gives markets a voice in where the daily fix should be set, “a welcome step” but said its impact will “depend on how the new mechanism is implemented in practice.”
Last week the IMF hailed China’s progress on financial reform but called on authorities to take further steps. The People’s Bank of China on Tuesday appeared to take the advice, announcing that it would begin referring to market forces when it sets the daily mid-point for its tightly-controlled currency.
The IMF said today:
Greater exchange rate flexibility is important for China as it strives to give market-forces a decisive role in the economy and is rapidly integrating into global financial markets.
We believe that China can, and should, aim to achieve an effectively floating exchange rate system within two to three years.
Two weeks ago, when considering the biggest question on every gold aficionado’s mind, namely how much longer will China keep its gold holdings in secret, we suggested that the answer may be not much longer. The reason: “China may be preparing to update its disclosed holdings because policy makers are pressing to add the yuan to the International Monetary Fund’s currency basket, known as the Special Drawing Right, which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings Inc. said in an April 8 report.”
“Next month” is now this month, i.e., May, when the fluid IMF meeting was supposed to take place in which China’s inclusion into the SDR was supposed to be at the very top of the agenda.
Unfortunately, it appears that either China, or the IMF, or both, got cold feet about the long-overdue China gold inventory update. The reason: on April 30, IMF spokesman Gerry Riceheld a press briefing in which the main topic was Greece. It had some very testy exchanges about the Greek Plan B such as the following:
After a drop last week, India’s foreign exchange reserves rose by $2.78 billion to $343.20 billion in week ended April 17, 2015, according to RBI.
During the week ended April 17, the foreign currency assets, a major component of forex reserves, jumped $2.727 billion to $318.859 billion.
Gold reserves remained unchanged at $19.038 billion, while Special Drawing Rights (SDRs) and India’s reserve position with the IMF increased marginally by $45.6 million to $4.005 billion and $14.8 million to $1.298 billion, respectively.
In the previous reporting week, the reserves had fallen by $2.593 billion in the week ended April 10, snapping a consecutive three-week rise. The reserves had partly fallen due to valuation changes and partly due to RBI selling dollars during that week. The rupee was under pressure in the previous reporting week due to dollar’s global strength and RBI had to sell dollars to support the Indian currency.
As is well known, the last time China did provide an update of its official gold inventory was in early 2009 when it disclosed to the IMF some 1,054.1 tons of gold held at the PBOC headquarters (or elsewhere). The problem is that this number is now very outdated, and substantially undercuts China’s true gold holdings.
To be sure, there has been extensive speculation on the topic, suggesting China’s current gold may be anywhere between 3,000 and 8,000 tons (or more) but the reality is that until Beijing itself decides to officially reveal the number, speculation will remain just that. And, as we and many others, Bloomberg included, have noted such a revelation will not come in a vacuum, but will be largely a political statement about the preparedness of the Renminbi to replace the US Dollar as the world’s reserve currency.
“China increases its gold reserves in order to kill two birds with one stone”
“The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.
The Reserve Bank of India’s (RBI) foreign exchange reservesfell by $471.4 million for the week ended January 2 to $319.24 billion, shows Reserve Bank of India (RBI) data released Friday. Foreign currency assets, a key component of reserves, fell by $863.2 million to $294.54 billion. Gold reserves rose $392.7 million during the week at $19.38 billion. For the week under review, the Special Drawing Rights(SDRs) fell by $0.7 million to $4.19 billion, while India’s reserve position with the International Monetary Fund was down $ 0.2 million to $1.14 billion.
The country’s reserves surged by $1.432 billion to $316.311 billion in the week to November 28 due to rise in foreign currency assets, RBI data showed on Friday.
In the previous week, reserves had declined by $672.4 million to $314.878 billion.
The foreign currency assets, a major constituent of overall reserves, increased by $1.424 billion to $290.822 billion, RBI said.
Foreign currency assets, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies such as the euro, pound and yen held in reserves.
The country’s gold reserves remained unchanged at $19.738 billion.
Special Drawing Rights (SDRs) increased by $6.4 million to $4.229 billion, while the country’s reserve
position with the IMF also rose by $2.5 million to $1.521 billion during the week, the RBI data showed.