NANJING, China (AP) — Financial leaders of the Group of 20 top economies appeared to reach informal agreement Thursday on the need for China's currency to have a wider role in global finance, but not as a substitute for the U.S. dollar.
French Finance Minister Christine Lagarde said the daylong meeting agreed the G-20 should study including China's yuan in the basket of currencies that sets the value of the International Monetary Fund's SDRs, or Special Drawing Rights — a quasi currency created by the IMF that is used in dealings with and between member governments.
"We raised with our Chinese friends the idea of including the yuan, under conditions and a time frame to be agreed upon," Lagarde said. "From right now we will start work on broadening the basket of currencies." The basket now includes the dollar, Japanese yen, euro and British pound.
Including the yuan would underline China's increased clout in the global economy and finance after it last year overtook Japan to become the second-biggest economy. It might also serve as a carrot that other G-20 members hope will encourage Beijing to relax controls that limit the Chinese currency's appreciation.
Since the gathering in the eastern Chinese city of Nanjing was not an official G-20 meeting, there was no formal agreement, Lagarde said. She also clarified there was "no suggestion whatsoever that the dollar be replaced by SDRs," an option that has been raised by China as a way of reducing global reliance on the dollar for trade and as a reserve currency.
"There is recognition that the dollar plays a critical role and will continue to do so," Lagarde said.
SDRs are allocated by the IMF based on each country's voting rights in the organization and the fund acts as a middleman between countries that want to exchange them for freely traded currencies. The IMF can require countries with ample currency reserves to buy SDRs from weaker nations in exchange for real currency.
The G-20 financial mandarins also agreed on the need for reforming the IMF to make it more diverse and representative — a long-standing demand from Beijing and other developing nations — and to make it more capable of monitoring trends and helping stave off financial crises.
Closer coordination and "common rules of the game" are needed to prevent currency wars, Lagarde said.
Despite the show of consensus, discord over the issue of China's exchange rate policies was evident, with French President Nicolas Sarkozy kicking off the talks by urging Beijing to move ahead further with internationalizing the tightly-controlled yuan.
Beijing has restrained the yuan's rise since the 2008 global crisis to help exporters that employ millions of workers compete abroad, though it has been easing those controls in recent months.
U.S. Treasury Secretary Timothy Geithner, without directly mentioning China, told a closed-door panel that such controls add to financial strains. Washington has long complained that Beijing keeps the yuan artificially cheap, giving Chinese exporters an unfair advantage in international markets.