China calls for ‘critical’ IMF reforms to mirror the nation’s economic prowess

China’s central bank chief has reaffirmed Beijing’s desire to have more of a say in the international financial system to match its economic prowess, while also calling for a regional monetary mechanism and enhanced bilateral cooperation.

People’s Bank of China governor Pan Gongsheng yesterday told the Boao Forum for Asia in Beijing that established institutions such as the International Monetary Fund (IMF) needed to be reformed in terms of their quotas and voting power to better mirror the weight a specific economy carried.

A day earlier, IMF managing director Kristalina Georgieva visited China’s central bank in Beijing, during which she discussed IMF quota reforms with Pan.

China holds 6.09 per cent voting power in the Washingtonbased fund, far lower than the 16.5 per cent share held by the United States, which effectively gives it veto power, with major decisions at the IMF requiring 85 per cent to be in favour for a motion to be approved.

The quota is far lower than China’s share in the global economic output, which stands at about 18 per cent.

“The quota reform is critical to the IMF’s governance representation and legitimacy,” Pan told a panel on Asian financial stability.

The fund concluded its latest round of quota reviews in December, but no decision has been made about any adjusted distribution.

According to President Xi Jinping’s financial superpower vision rolled out at October’s central financial work conference, a part of it would be to grow the weight of the world’s secondlargest economy in international finance.

“Finance has become one of the hotly contested realms in superpower rivalry,” Xi wrote in Excerpts of Xi Jinping’s Speeches on

Finance Work, a newly published book summarising his financial instructions.

In another session at Central Party School – the higher education institution which trains Communist Party officials – in January, Xi said “having a strong voice and ability to deploy its influence in the formulation of global financial rules is one of the core attributes of a financial superpower”.

Rui Meng, a professor with the China Europe International Business School in Shanghai, said China stood to be the biggest beneficiary of the upcoming quota adjustment and capital injection for a more proportionate mix of voting powers at the IMF.

“Beijing is challenging US dominance, but it also has to ensure fairness as China’s growing say won’t become another unfair dominance,” Rui said. “That’s why Pan has stressed a collective Asian voice and approach that has wider support and is more sustainable.”

In Boao, Pan appealed to panellists, including central bank officials from Indonesia, Singapore and Mongolia, to dovetail efforts to expedite quota realignment, including a new formula, to reflect the weight of emerging markets in Asia.

Beijing has also pinned more hope on strengthening regional deals, including the Chiang Mai Initiative (CMI). The initiative is a currency swap arrangement pooling China, the 10 Southeast Asian nations, Japan and South Korea.

“The CMI is in line with changes in the international monetary system and the characteristics of the region as a stabiliser,” Pan added.

“Specific ways to introduce a freely usable currency are being discussed. This will further serve the region with freely usable currencies and improve the flexibility … of investment.”

Beijing is challenging US dominance, but it also has to ensure fairness as China’s growing say won’t become another unfair dominance RUI MENG, PROFESSOR WITH THE CHINA EUROPE INTERNATIONAL BUSINESS SCHOOL IN SHANGHAI