2011-02-18 09:52

PARIS - The head of the Organisation for Economic Co-operation and Development (OECD) has "warmly welcomed" moves to internationalize the Chinese currency.

However, Jose Angel Gurria has also ruled out the possibility that the appreciation of the renminbi, also known as the yuan, will reduce the trade imbalance between China and the United States.

"Quicker internationalization of the renminbi could be China's contribution to rebuilding the global monetary order," said Gurria, the secretary-general of the Paris-based organization, in an exclusive interview with China Daily.

Gurria sent out the message ahead of the forthcoming G20 meeting of finance ministers and central bank governors, which will take place on Friday and Saturday, at which China's role in reshaping the global financial order will be a prime topic of discussion.

He said the Chinese economy is expanding rapidly and, in terms of market-exchange rates, it is now the second-largest in the world. "As such, it is natural that countries will want the renminbi to figure in their reserves," said Gurria, who presides over the 34-member organization, which is an umbrella group of the wealthiest industrialized countries.

In terms of reforming the world monetary order, he said China's role could be to extend the internationalization of the currency. However, at present, total holdings of the currency outside China are extremely small compared with the official foreign-exchange holdings of dollars or euros, or when compared with private holdings of those currencies.

Meanwhile, the renminbi is not convertible for capital transactions, and Gurria said the Chinese authorities could make a major contribution to a new global architecture by substantially increasing the internationalization of the currency.

The Paris meeting is doubly significant as France holds the presidency of both the G8 and G20 this year. France has also been campaigning for a more broad-based currency arrangement and is pressing for a reduction of the financial world's excessive reliance on the US dollar.

French President Nicolas Sarkozy has called for better regulation of international capital flows and urged a further strengthening of the Special Drawing Rights (SDR), issued by the International Monetary Fund (IMF), by the addition of the Chinese currency.

The SDR is an international reserve asset, created by the IMF to supplement the official reserves of its member countries.

Although the Chinese government is yet to announce a roadmap for internationalization of the yuan, it has begun the process through currency swaps and by using the currency for foreign-trade settlements.

China got a shot in the arm recently when the US decided to support the inclusion of the yuan in the SDR, during President Hu Jintao's recent US visit.

French Finance Minister Christine Lagarde said France has highlighted five areas for action - the identification of macroeconomic imbalances, reform of the international monetary system, reducing the excessive price volatility of raw materials, establishing seamless financial regulation, and the promotion of development.

Finance ministers and central bank governors of the G20 countries are expected to hold three meetings this year ahead of the annual summit which will be held in Cannes during November.

The Paris meeting will be followed by one in Washington in April, and another in Paris during October.

Gurria said appreciation of the renminbi would definitely help to lower the overall Chinese current-account surplus but that it is impossible to address the trade imbalance between China and the US. He also said the appreciation of the Chinese currency would also help to contain rising domestic inflationary pressures.

However, China's economy depends on large imports of raw materials and as a result, it needs to have a surplus in manufactured goods to balance the deficit, according to Gurria. "Thus even with a current account in complete balance, China is likely to run a surplus with the major developed countries in purchasing its raw materials."