If China wants the yuan to become a world currency, Beijing would have to have open capital markets and full convertibility, the world’s number two said on Tuesday. International Monetary Fund (IMF).
IMF First Deputy Managing Director Gita Gopinath speaking about the global lender’s new institutional vision for capital flowsaid history has shown that reserve currencies widely used in global commercial transactions, such as the dollar and the British pound, are not capital-constrained.
“If a country aspires to be a global currency, then in that case, you would basically need to have fully and freely mobile capital, full capital account liberalization, full exchange rate convertibility, which is not the case now.” same in ChinaGopinath said in response to a question about China’s capital restrictions.
The IMF updated its institutional guidance on capital controls in March to allow the use of precautionary measures to reduce the risk that sudden capital outflows cause financial crises or deep recessions.
Under the new guidance, countries will no longer have to wait for surges in capital flows to materialize and will be able to impose these measures to counteract a gradual buildup of foreign currency debt that is not backed by foreign exchange reserves or hedges.
Gopinath He said some countries with fixed exchange rates might have more reason to employ capital flow measures preemptively because they would have fewer tools to counter sudden capital outflows.
However, he warned of the danger of using security measures Capital fluxes to achieve certain political objectives that are better managed with national tools, such as controlling the rise in house prices.