For China and other emerging nations, developed countries are over-represented and power distribution within the IMF does not reflect the status of the world economy.
For Yi, “a major reason” why international institutions failed to anticipate the global financial crisis was the lack of adequate representation of emerging economies.
Everyone agrees that China, India and other emerging nations should be better represented in world economic and financial organisations but the battle is being fought over how much better.
According to China, IMF representation should reflect each country’s monetary contributions. The IMF should also boost its supervision of international capital flows, and encourage the relative stability of exchange rates of the main reserve currencies.
This year Beijing pledged to give the IMF up to US$ 50 billion by buying bonds, but like Russia and Brazil, it made it clear that its contribution would not be permanent unless developing countries were given more power.
At the same time, the tug-of-war inside the IMF is over not only its future structure, but also China’s financial policies.
IMF chief Dominique Strauss-Kahn in fact reiterated his criticism of China’s “undervalued” currency, but said reforms to exchange rate policies were part of wider moves to generate more balanced global growth.
The United States and the European Union also believe the renminbi should be re-valued and brought to its real value in order to reduce China’s positive trade surpluses, an issue that was raised at the G20 summit in Pittsburgh two weeks ago.
Yi’s response was to say that the “IMF should strengthen its supervision of all major financial markets and [. . .] should comprehensively consider all policies of its member states,” but “it should not simplistically, mechanically assess individual policies.”
Yi added that his country's exchange rate policy, which has been to keep the yuan low vis-à-vis the US dollar since July 2008, was very clear and that Beijing did not intend to change it.
Instead, Chinese leaders have been informally pushing the international community to adopt a currency of reference, Special Drawing Rights (SDRs), a little known unit of account used by the IMF based on the US dollar, the euro, the pound sterling and yen.
For some analysts, Beijing’s actual goal is to open up a discussion on which currencies can best serve as currencies of reference. Underlying this is a desire to see US authorities maintain the value and current central role of the US dollar, whilst giving China’s own currency greater importance.
Washington’s response has been to press Beijing to appreciate the yuan to its real value.