When the International Monetary Fund met on July 1, it decided to issue US$150 billion worth of special drawing rights (SDR) bonds. China bought one-third of them. America has always been the largest stakeholder in the IMF. In turn, the IMF is often accused of serving as a tool of American global policy. China seems to want to change this.
On June 16, when Brazil, Russia, India and China (known by the acronym Bric) met in Yekaterinburg, Russia, to discuss alternatives to the US dollar as the world reserve currency, a greater vision was looming - the restructuring of our global financial system.
In some respects, this meeting may be as significant in terms of transforming relations between the developed and underdeveloped world as the Bandung conference of 1965. Political rhetoric about colonial-imperialism has been put aside. The Bric nations are changing global finance, post-Bretton Woods, by becoming the IMF's creditors rather than its debtors.
That, however, requires a more complicated financial restructuring than can be accomplished in one meeting. For a start, IMF rules require waiting another four years before the institution can undergo the very same 'structural adjustment' it has preached to developing countries. Effectively, IMF rules also prevent Bric nations from having a greater say at the board level, at least during this global financial crisis.
But, as China knows better than everyone else, there is always a way around bureaucratic rules. If you cannot become a shareholder, then be a creditor. The IMF's coffers are empty. So when the IMF decided to issue US$150 billion in SDR bonds, the Bric nations bought in, with Russia and Brazil purchasing US$10 billion worth each, and China taking the lion's share of US$50 billion. If China cannot be the IMF's biggest shareholder, it is determined to become its biggest creditor. Beijing has reasons for wanting to gain leverage. The IMF has continuously insisted that China adjust its currency upwards. In a recent report, it openly accused China of undervaluing its currency and called for the yuan to be revalued. This is precisely what China refuses to do, and Beijing is quite irritated.
Chinese economists are extremely confident, believing this crisis gives China space for further financial reform. The international system needs reforming and the global economic power structure requires restructuring. Within this context, the yuan will rise and become the international currency - at least that is what many in Beijing think.
