The International Monetary Fund (IMF) has told China about its concern over investors' ability to enter or leave Chinese financial markets as they wish, said sources with direct knowledge of the matter. Those worries were raised last month when the IMF met with Chinese officials in China to discuss the chances of including the yuan in the fund's basket of currencies, also known as the Special Drawing Rights (SDR).
The SDR is an international reserve asset, and Beijing has been lobbying the IMF to include the yuan in the basket to boost the currency's global clout to complement a rising Chinese economy and reduce China's reliance on the dollar. The talks were held before Chinese shares plunged as much as a third in late June, prompting Beijing to stage its biggest-ever rescue of the stock market.
The measures, which included steps such as barring some investors from selling their shares, drew criticism of unwarranted government interference and cast doubt on China's appetite for market reforms. The IMF requires any SDR currency to be "freely usable", a criteria that US Treasury Secretary Jack Lew said in April that China has yet to meet. The sources said the IMF had asked China - which still has a closed capital account - to improve the transparency of its financial markets, but said the fund did not voice any concerns about the yuan's value.
It also did not flag any issues with the yuan's exchange rate mechanism, in particular the way China fixes a mid-point for the yuan every day from which it can rise or fall 2 percent, they said. China's central bank, which the sources said had held the talks with the IMF, declined to comment. The fund, when asked about the discussions, said, "The five-yearly SDR review is underway and the technical work is ongoing."
IMF Managing Director Christine Lagarde said in March that it is a matter of time before the yuan is incorporated into the SDR, but the fund has otherwise given no public indication on whether it thinks the yuan is ready for the basket. The SDR is set to be formally reviewed in the autumn. A 70 or 85 percent majority of the IMF council is needed to support any changes, which will take effect in January 2016.