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SHANGHAI: When the
International Monetary Fund agrees on Monday to add the Chinese yuan to its
reserves basket in the biggest shake-up in more than three decades, the IMF can
afford itself a congratulatory nod.
By acknowledging the
yuan as a major global currency alongside the dollar, euro, yen, and pound
sterling, as is widely expected, IMF members will endorse the efforts of
China's economic reformers and by doing so hope that will spur fresh change in
China.
But Chinese policy
insiders and international policymakers say reforms may not continue at the
breakneck pace of recent months. In addition, Chinese sources suggest adding
the yuan to the IMF basket leaves economic conservatives better positioned to
resist further significant reform in a reminder of the period following China's
entry to the World Trade Organization (WTO).
China has pushed to
make the yuan more international, setting up swap arrangements with countries
so trade can be settled in the currency and China has said it will push ahead
with financial reform. It has widened the yuan's trading band and this year
went a long way to freeing up interest rates.
But Chinese policy
advisers have always been divided, sometimes publicly, on how far China should
go in opening up its borders to foreign capital; while few use vocabulary that
rejects general reform principles, many domestic policy advisers - including
some otherwise supportive of economic liberalization - warn throwing open the
gates to cross-border flows would be destabilizing.
They have many quiet
allies among China's state-owned banks and other inefficient industries, which
fear that a freer market for capital will expose them to international
competition and put them out of business.
Foreign access to
financial markets is still tightly restricted and of late regulators have
reversed some measures that were designed to make it easier to move the yuan
offshore.
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