China signs note-purchase deal with IMF
- Source: Global Times
- [09:21 September 04 2009]
- Comments
The International Monetary Fund (IMF) signed its first note-purchase agreement with China late Wednesday, under which China would buy up to $50 billion in Special Drawing Rights (SDRs) in IMF notes.
The agreement was signed between the Deputy Governor of the People's Bank of China, Yi Gang, and the Managing Director of the IMF, Dominique Strauss-Kahn, following the endorsement by the IMF Executive Board on July 1 of the fund's framework for the first time to issue notes to its 186 members, the IMF said Wednesday in a statement at its website.
As announced in its scheme, the bond denominated with SDR will mature in five years, and pay dividends quarterly to lenders, the Xinhua News Agency said.
As early as June, China expressed its intention to invest in IMF notes. The agreement now offers China a safe investment instrument, the IMF said.
China has expressed its willingness to push the IMF to expand money sources and its support for the fund to shoulder more supervisory duties in developing a fair system for international reserve currencies, Ding Yifang, a researcher with China's Development Research Center of the State Council, told the Global Times yesterday.
"China hopes to see the SDR function with stronger currency roles," Ding added.
Apart from China, three other countries making up the BRIC – Brazil, Russia and India – are also expected to negotiate their bond purchases with the IMF, in a drive to seek greater representation in the body.
Compared with other BRIC countries, the $50 billion deal is relatively large, said Zhang Xinfa, an analyst with China's Galaxy Securities, adding that the purchases will provide additional sources of money to the IMF, as liquidity support to raise members' ability to weather the credit crunch.
Most international organizations are short of money, therefore China's purchase now helps the IMF to sustain the crisis, which also reflects the increasing role China plays in the organization, according to Feng Pengcheng, associate professor at the University of International Business and Economics.
However, with China's over $2 trillion foreign reserves, the $50 billion is not a large sum, Ding noted.
"But China does need to diversify its foreign reserves by investing in the international body, in which China at least has more rights than in US treasury bonds."
As for the IMF, the bonds are part of a wider effort to seek $500 billion in new funding to help countries combat the global financial crisis.
Despite the bond purchases, the replacement of the US dollar with the SDR has a long way to go, and it needs concerted coordination and support from a majority of countries, Ding pointed out.
