IMF cuts global growth forecasts, citing escalating trade tensions

(THIS ARTICLE IS COURTESY OF THE SHANGHAI CHINA NEWS AGENCY ‘SHINE’)

 

IMF cuts global growth forecasts, citing escalating trade tensions

Xinhua

The International Monetary Fund has cut growth forecasts for the global economy this year and next year, as escalating trade tensions could dent business sentiment and trigger financial market volatility.

In its updated World Economic Outlook report released on the IMF’s website on Monday, the Washington-based international lender said global economic growth is projected to reach 3.7 percent in 2018 and 2019, 0.2 percentage points lower than its previous forecasts in July.

“Downside risks to global growth have risen in the past six months and the potential for upside surprises has receded,” the report said, adding the economic expansion has become “less balanced” and “may have peaked” in some major economies.

The IMF maintained its growth forecast of 2.4 percent for advanced economies in 2018, while downgrading its forecast for those economies in 2019 to 2.1 percent, 0.1 percentage points lower than its July forecast.

Growth in emerging markets and developing economies is projected to reach 4.7 percent in 2018 and 2019, 0.2 percentage points and 0.4 percentage points, respectively, lower than the previous forecasts in July.

The IMF kept its growth forecast for China at 6.6 percent this year, while shaving its projection for China’s growth next year to 6.2 percent, down 0.2 percentage points from three months ago.

As the United States unilaterally imposed additional tariffs on some of its main trade partners in the past several months, the IMF warned that “escalating trade tensions and the potential shift away from a multilateral, rules-based trading system” are key threats to the global outlook.

“An intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade,” the report said.

“Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare,” the report argued, adding more import restrictions would push up the prices of consumer goods, thus harming low-income households disproportionately.

The report comes as global financial ministers and central bankers gather in Bali, Indonesia, this week to attend the annual meetings of the IMF and the World Bank. Officials are expected to have a heated discussion on the trade tensions.

Christine Lagarde, managing director of the IMF, last week called on economies around the world to “de-escalate and resolve the current trade disputes” as global economic growth outlook has dimmed.

“The stakes are high because the fracturing of global value chains could have a devastating effect on many countries,” Lagarde said, urging countries to work together to build a global trade system that is “stronger, fairer, and fit for the future.”

Lebanon Stresses Compliance With US Measures Against Hezbollah

(THIS ARTICLE IS COURTESY OF THE SAUDI NEWS AGENCY ASHARQ AL-AWSAT)

 

Lebanon Stresses Compliance With US Measures Against Hezbollah

Friday, 28 September, 2018 – 09:45
Central Bank Governor Riad Salameh delivers a speech during the plenary session of the Annual Meetings of the International Monetary Fund and the World Bank Group in Tokyo. REUTERS/Yuriko Nakao
Beirut – Nazeer Rida
The new US draft-law on Hezbollah is moving to an advanced stage involving media funders, economic and social institutions linked to the group, in what seems to be “an attempt to isolate the supporters of the party, which is facing increased financial pressure,” according to experts.

The new draft-law imposes sanctions on the supporters of “Bayt al-Mal” and “Jihad Al-Bina”, which is involved in construction works, as well as the party’s media institutions, and includes advertisers who broadcast ads through Hezbollah’s channels.

While the bill seeks to “increase pressure on banks dealing with the group,” Central Bank Governor Riad Salameh said on Thursday in response to a question about his willingness to enforce the sanctions: “We, as the central bank, issued circulars a while ago, and there aren’t new notices.” He explained and these circulars make Lebanon comply with the laws of countries that have currency or banks dealings with it.

He pointed out in a radio interview that those circulars were sufficient enough whatever the new sanctions, adding that there was nothing new on this subject.

The US House of Representatives unanimously voted to pass a bill calling for new and harsh sanctions against Hezbollah. The new sanctions aim to limit the party’s ability to raise funds and recruit members, as well as increase pressure on the banks that deal with the group and the countries that support it, especially Iran. The sanctions also prohibit anyone who supports the party materially and in other means from entering the United States.

According to Dr. Sami Nader, Director of Levant Institute for Strategic Affairs (LISA), the new bill shows that the circle of sanctions is widening, since it started with Hezbollah’s officials, then reached the entities associated with the party, and today includes the supporters of the group’s institutions.

 

 

Argentina Is In Crisis, In Danger Of Collapse From The Inside, Government Is Aloof

(THIS ARTICLE IS COURTESY OF BRAZIL 247 NEWS)

 

U.S. Treasury Secretary Mnuchin Urges IMF To Enhance FX Surveillance

(THIS ARTICLE IS COURTESY OF REUTERS)

Mnuchin urges IMF to enhance FX surveillance

U.S. Treasury Secretary Steven Mnuchin on Saturday called on the International Monetary Fund to enhance surveillance of its members’ exchange rates and external imbalances, as large trade imbalances would hamper “free and fair” trade.

Mnuchin said the global economy continues to exhibit large and persistent external imbalances, “which contribute to the sentiment that the existing international monetary and trading system does not benefit all.”

“In our view, excessively large trade surpluses, like excessively large trade deficits, are not conducive to supporting a free and fair trading system,” he said in a statement to the International Monetary and Financial Committee, the IMF’s steering committee.

U.S. President Donald Trump has threatened to impose measures to restrict imports, and attacked countries like China, Germany and Japan for running large trade surpluses with the United States and benefiting from weak currencies.

Mnuchin called on countries with large external surpluses and sound public finances – likely a reference to Germany – to expand fiscal stimulus to boost growth and help narrow trade imbalances.

He also urged the IMF to scrutinizes its member nation’s exchange rates and identify “specific policy adjustments” for each country to counter global imbalances.

“We look to the IMF to highlight where surplus countries can more forcefully contribute to support symmetric adjustment in pursuit of a fairer global system,” he said.

Mnuchin also urged countries to abide by their exchange-rate commitments, such as to refrain from competitive devaluation, not use monetary policies to target exchanges rates for competitive purposes, and to consult closely on exchange rates.

(Reporting by Leika Kihara; Editing by Andrea Ricci)

China: President Jinping Says Stability Is Needed To Help Global Markets As China Beats Their War Drums

 

 

(THIS ARTICLE IS COURTESY OF THE SHANGHAI DAILY NEWS)

Stability needed next year for stronger global economy

FOR China and the world to witness stronger economic growth next year, one thing is needed: stability.

For an international market trapped in fluctuations during a year of surprising events, a new direction in 2017 is a must, something discussed at a recently ended annual economic policy meeting in Beijing.

“Seeking progress while maintaining stability” was the main theme of this year’s Central Economic Work Conference, according to a statement released by the conference on Friday. Economic priorities for 2017 were also be hammered out.

With a gross domestic product (GDP) accounting for over 15 percent of the global total, China’s growth at 6.7 percent in the third quarter, or between 6.5 percent and 7 percent annually, represents a natural and significant contribution to global economic stability.

That is true more than ever since the International Monetary Fund in October revised down global growth to 3.1 percent for 2016 and 3.4 percent for 2017.

Moreover, the spillover of China’s new economic policies will be strongly felt in the ongoing joint construction of the China-proposed Belt and Road Initiative, which will see development of countries along its route.

STABILITY WITH CONTINUED SUPPLY-SIDE STRUCTURAL REFORM

In combination with the growth trend in the second half of 2016, the important messages Chinese policymakers convey at the key annual economic conference will highlight a clear reform course for the world’s second largest economy.

Stability is a prerequisite for reforms, commented Margit Molnar, head of the China Desk of the Economics Department of the Organization for Economic Cooperation and Development.

Having dealt with such flashpoints like the asset bubble and local government debt, China will help prevent systematic risks, creating conditions for continuing the supply-side structural reform, he told Xinhua.

The economic work conference has maintained supply-side structural reform as necessary for stable growth, with a continued focus on upgrading the country’s economic structure.

Reforms which focus on expanding effective supply in a dynamic supply-demand equilibrium, will promote stability, said Zhao Yao, professor with the business school of Rutgers University in the United States.

LONG-TERM MOVES TO COOL DOWN REAL ESTATE

Homes are for living in rather than speculation, the conference stressed, proposing to use financial, land, taxation, investment and other instruments to establish a fundamental and long-term system to curb real estate bubbles and market volatilities.

Guo Shengxiang, dean of the Australian think tank Academy of APEC Creative Finance, described the idea as “forward-looking”.

“It will be a good news, to stabilize the market, improve people’s well-being and facilitate the development of the real economy,” he said.

The Hong Kong and Shanghai Banking Corp. (HKSB) believes measures to cool down real estate will not thwart China’s economic recovery.

Without a complete tightening of monetary policy, the impact of government regulations could be neutralized by infrastructure investment with financial support, it said.

PRUDENT AND NEUTRAL MONETARY POLICY AGAINST RISKS

The conference defines China’s monetary policies for 2017 as “prudent and neutral”, promising better adjustments to ensure stable liquidity.

Monetary policymaking should adapt to changes in the use of money supply tools, and further efforts are needed for smoother policy transmission, it said.

China will keep the yuan basically stable, while improving the flexibility of exchange rates.

“The stance shows the government is trying to find a subtle balance between stabilizing growth and controlling asset bubbles,” noted Hong Hao, chief China strategist at BOCOM International.

Earlier, a Standard Chartered Bank report predicted financial and monetary policy instruments available to the Chinese government would suffice to support China’s growth in the coming years.

Can The $12bn Loan From The IMF Help Save Egypt’s Economy And Their People?

(THIS ARTICLE IS COURTESY OF THE CAIRO EGYPT DAILY NEWS)

IMF approves $12bn loan: what’s next for Egypt’s economic reform programme?

These reforms aren’t easy but they will unleash the potential of Egypt’s economy and serve its people, says IMF managing director

Egypt successfully secured the International Monetary Fund’s (IMF) approval for the three-year, $12bn loan agreement on Friday. The first instalment of $2.75m has already been received following the IMF executive board’s approval.

The loan payment will be over a 10-year period with an interest rate of 1-1.5%.

Egypt’s economy has been suffering post-2011 revolution; political instability in addition to regional security concerns have had a negative effect, especially on the tourism sector. These factors intensified Egypt’s already existing structural problems, which can be summarised into three main issues.

First, the fixed exchange rates. The Central Bank of Egypt (CBE) policy of controlling the Egyptian pound exchange rate against the US dollar had a very negative impact on the economy, leading to lower external competitiveness, depletion of foreign reserves, and foreign exchange crisis, which in turn has affected investments, and led to food shortages.

Second, the sky high budget deficit and public debts as a result of various factors, such as weak revenues, large subsidy bills that are mismanaged and not reaching eligible recipients, combined with a huge public sector wages bill. The current level of deficit and public debt is almost 100% of Egypt’s total GDP.

Finally, low growth achieved in the years following the 25 January Revolution 2011 due to structural issues which have constrained growth and job creation, in addition to declining tourism following the Russian Metrojet incident in October 2015. Egypt has failed to produce enough job opportunities to absorb the several hundreds of thousands of young people joining the workforce annually.

Egypt’s GDP growth peaked in the fiscal year (FY) of 2007/2008 reaching 7.152%, decreasing to 5.139% by FY 2010. It then fell sharply marking a record low of 1.817% in FY 2011, and started to recover in FY 2015, reaching 4.2%. The IMF projects a 4% growth in FY 2017, according to their World Economic Outlook report for October.

 

IMFReforms plan to revive Egypt’s growth prospects, unleash economy’s potential

Egypt’s economic reform programme supported by the International Monetary Fund (IMF) is, according to managing director Christine Lagarde, “designed to revive growth and make sure it produces lasting changes and inclusive growth”.

The main objective of the reform programme is to restore investors’ confidence in Egypt’s economy. The five pillars of the programme are as follows:

Liberalising the exchange rate system

The Central Bank of Egypt (CBE) has already floated the currency, moving it from EGP 8.83 to the US dollar to about EGP 16 on Friday. This decision will not only lead to improved competitiveness, increased attractiveness to foreign direct investments, as well as helping exports and tourism, it will also give the CBE the chance to rebuild Egypt’s international reserves.

Reducing energy subsidies

The fuel subsidy bill for the fiscal year (FY) of 2016/2017 stands at EGP 35bn. Energy subsides are mismanaged and do not benefit the poor as much as intended. These subsides also shift production and investments towards high-energy intensive industries, rather than to labour-intensive industries.

Reducing these subsidies will free up resources that can be allocated to high-priority areas such as education, health, and social safety nets.

Reviving the economy by boosting growth

Egypt aims to improve its business climate by implementing reforms to eliminate bureaucracy, ease the required procedures to obtain licences for projects, and make finances accessible to small- and medium-sized enterprises (SME). This comes as an effort to increase job creation so as to reduce Egypt’s currently high unemployment rates.

Tax reforms to increase revenues

The value-added tax (VAT), considered the cornerstone of Egypt’s economic reform programme, was approved by parliament in August, in addition to the tax disputes law, and tax administration and development plans to integrate the informal economy and broaden Egypt’s tax base. This aims to fix existing imbalances in the business community, and increase government revenues without negatively affecting the low- and middle-income brackets. The VAT includes exemptions for most staple foods consumed by low-income citizens.

Strengthening social safety nets and social protection

One of the most important aspects of the programme is to increase spending on food subsidies, as well as cash transfers to the elderly and the poor through the Takaful and Karama programmes. About 1% of the GDP from fiscal savings will be allocated to fund these initiatives, in addition to keeping the existing school meals, infant formula subsidies, and children’s medicine subsidies.

 

11-3-page-001Egypt’s prospects for the future

With an efficient and effective implementation of the government’s reform programme, Egypt’s GDP growth can increase significantly to reach 6% by 2021, similar to levels during 2005-2010.

Egypt aims to achieve this result by attracting $10bn in foreign direct investment (FDI) in the fiscal year (FY) of 2016/2017, in order to achieve the government’s targeted GDP growth of 5.2% in the same fiscal year.

Egypt has immense potential owing to a young dynamic population, a large market size, a favourable geographic location, access to important foreign markets, the government’s large investments in the energy sector, in addition to the newly discovered Zohr gas field, all act in favour of Egypt’s growth potential.

On the other hand, high levels of inflation will prove to be a challenge for the government. Egypt’s core inflation rate reached 15.57% in October according to the Central Bank of Egypt (CBE). The International Monetary Fund (IMF) projects that inflation will increase to 18.2% in FY 2016/17; however, it is expected to decline sharply to 7.1% in FY 2020/21.

Egypt’s economic crisis has affected almost every social class, not only the poor. Further, the flotation of the currency lead to an almost 50% drop in its value, which, in turn, has resulted in an increase in the prices of all goods and services. But the government is keen to continue the programme, saying that Egypt can no longer afford any delays.

“These reforms aren’t easy; they will take time to generate gains and benefits. But it’s really worth the journey: implementing them will unleash the economy’s potential and will serve its people” said IMF managing director Christine Lagarde.

Lagarde emphasised that the IMF and the international community’s full support to the Egyptian authorities and the Egyptian people, through every step of the journey of reforms.

 

Governor of the Central Bank of Egypt (CBE), Tarek Amer
Governor of the Central Bank of Egypt (CBE), Tarek Amer

Foreign currency flows into Egypt, making reserve’s target of $25-30bn possible

 

Throughout last week, the government along with the Central Bank of Egypt (CBE) specified several confirmed resources for foreign currency, which would help reach the targeted foreign currency reserves of $25-30bn by the end of 2016 previously affirmed by CBE governor Tarek Amer.

Egypt’s foreign reserves stood at $19.041bn at the end of October, according to the CBE.

Egypt has already received the first tranche of the International Monetary Fund (IMF) loan worth $2.75bn, and is expected to receive another $2.7bn from China after the currency swap agreement between the two countries. Additionally, another $1.5bn will be received from the World Bank and the African Development Bank by the end of 2016.

Moreover, Egypt offered international bonds worth $2bn in the Ireland Stock Exchange through a private placement in favour of the CBE, and will offer bonds worth $2.5bn in international markets, for which it expects to receive revenues before the end of this year.

Around 50% of the total $4.5bn gained through the bonds sale will be added to the CBE’s foreign currency reserves, while the remaining amount will be used by the CBE to repurchase international bonds worth $2bn issued by the Ministry of Finance, according to government sources.

The repurchasing of bonds is a guarantee to investors who bought bonds in the international private placement. Hence, if the Finance Ministry would not be able to repay the value of its issued bonds once they mature, the CBE will waive its repurchased bonds and repay the matured bonds to investors.

 

Previously, the ministry had announced that the government issued bonds worth $1.36bn with an annual interest rate of 4.62% to mature on 10 December 2017. Additionally, the ministry issued a $1.32bn bond with an interest rate of 6.75% to mature on 10 November 2024, and a bond worth $1.32bn with a 7% interest rate to mature on 10 November 2028.

 

Minister of Finance Amr El-Garhy said that this step assures the ministry’s commitment to diversify the financing sources specified for the budget deficit, and to ease pressure on domestic funding sources, as well as reduce the cost of public debt.

In September, the Ministry of International Cooperation had said in a statement that Egypt will receive $500m  from the African Development Bank by the end of 2016. The ministry also noted that Egypt would receive $1bn from the World Bank before the end of the year which represents the second tranche of a loan worth $3bn.

Chinese president arrives in India’s Goa for BRICS summit

(THIS ARTICLE IS COURTESY OF THE SHANGHAI DAILY NEWS)

Chinese president arrives in India’s Goa for BRICS summit

CHINESE President Xi Jinping arrived in the western Indian state of Goa Saturday for a summit of the emerging-market bloc of BRICS that groups Brazil, Russia, India, China and South Africa.

Leaders of the five countries are expected to discuss BRICS cooperation and other issues of common concern at the Oct. 15-16 summit, themed with “Building Responsive, Inclusive and Collective Solutions.”

A Goa declaration will be issued when the summit concludes Sunday.

Along with Xi, Brazilian President Michel Temer, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and South African President Jacob Zuma will be attending the summit, the eighth of its kind.

The five leaders will hold dialogues with representatives of the BRICS Business Council and state leaders of BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) countries at the summit.

The BIMSTEC, initiated to connect South Asian and Southeast Asian countries, comprises Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand.

President Xi will also hold bilateral meetings with leaders of other countries on the sidelines of the summit.

This year marks the 10th anniversary of the BRICS cooperation mechanism, which gathers the world’s five major emerging economies.

The bloc members have seen their cooperation growing over the past decade, especially the establishment of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) in 2014.

Despite economic headwinds in the BRICS countries and external skepticism about whether the block is losing its power over recent years, the International Monetary Fund (IMF) said earlier this month in its latest issue of World Economic Outlook that in emerging market and developing economies, the 2016 growth will accelerate for the first time in six years.

China and India, in particular, will continue their relatively fast pace in growth this year and next, according to the IMF projections. Meanwhile, the IMF cut its 2016 growth prospects for advanced economies following a slowdown in the United States and Britain’s referendum vote to leave the European Union.

The five BRICS leaders just met last month in the eastern Chinese city of Hangzhou when China hosted the 11th summit of the Group of 20 (G20) major economies.

At their meeting on the sidelines of the G20 summit, President Xi said that BRICS members should enhance coordination to make emerging-market economies and developing countries play a bigger role in international affairs.

BRICS nations are leaders among emerging-market economies and developing countries, and also important members of the G20, Xi said, noting that they should reinforce coordination to build, maintain and develop the BRICS and G20 platforms.

China has been a staunch supporter for and an active participant in BRICS cooperation, Chinese Vice Foreign Minister Li Baodong told reporters earlier this week.

“We hope the Goa summit can send out a positive signal of confidence, solidarity and cooperation, help deepen our practical cooperation and promote the cooperation level, enhance communication and coordination on major international issues to safeguard our shared interests, and strengthen dialogue and cooperation with other countries in the region,” Li said at a press conference ahead of Xi’s trip.

India is the final stop of Xi’s Southeast Asia and South Asia tour, which has already taken him to Cambodia and Bangladesh.

Before leaving Bangladesh on Saturday morning, Xi laid a wreath at the national martyr monument in Dhaka.

IMF Downgrades The Worlds Economic Growth Outlook For 2016-17

(THIS ARTICLE IS COURTESY OF THE SHANGHAI DAILY NEWS)

IMF downgrades world’s prospects

THE International Monetary Fund downgraded its forecasts for growth in global trade volume and for advanced economies’ output, saying that prospects for richer countries had darkened this year in its latest global economic forecasts.

“It is vitally important to defend the prospects for increasing trade integration,” IMF chief economist Maurice Obstfeld said yesterday. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”

Global output is expected to grow this year at a rate of 3.1 percent before rising to 3.4 percent next year, estimates that are unchanged from July, the IMF said in its World Economic Outlook report.

The IMF notably cut its growth forecast for the United States, the world’s largest economy, but upgraded those for Japan and the euro zone.

“Taken as a whole, the world economy has moved sideways,” Obstfeld said, adding that “sub-par growth” was stirring negative economic and political forces around the world.

The IMF downgraded its outlook for advanced economies this year by 0.2 percentage points to 1.6 percent but raised it slightly for emerging and developing economies to 4.2 percent. Next year’s forecasts were unchanged.

The global crisis lender predicted the US economy would expand by just 1.6 percent, compared to its July estimate of 2.2 percent and one percentage point below 2015’s pace.

The slower-than-expected activity comes out of the ongoing oil industry slump, depressed business investment and a persistent surplus in business inventories, it said.

But also underpinning the turgid pace of activity, the IMF said, is uncertainty over the looming US presidential election, which pits Democrat Hillary Clinton against Republican Donald Trump.

The IMF also cut its 2017 growth forecast for Britain, blaming Brexit, and warning that the damage could be greater if rocky negotiations lead to trade barriers.

Uncertainty after Brexit vote

It now expects Britain’s GDP to expand by 1.1 percent in 2017, a downgrade of 0.2 percentage points from the prediction given in July.

“In the United Kingdom slower growth is expected since the referendum as uncertainty in the aftermath of the Brexit vote weighs on firms’ investment and hiring decisions and consumers’ purchases of durable goods and housing,” the IMF said.

The world trade outlook also soured, with growth pegged at 2.3 percent this year, 0.4 percentage points lower than forecast in July, before rising to 3.8 percent in 2017.

“Over the medium term, while we expect that advanced economies will continue along a disappointingly low growth path, emerging market and developing economies should accelerate,” said Obstfeld.

Japan was a surprise bright spot, with forecasts for this year and next revised upward over July’s forecast. The Japanese economy is now due to grow by 0.5 and 0.6 percent this year and next.

Likewise, the euro zone had its forecasts moved upward by 0.1 percentage points, with output expected to increase by 1.7 percent this year and 1.5 percent in 2017.

But Obstfeld warned of a “gathering political fallout” of a low-growth era in wealthy countries where income distribution has skewed “sharply toward the highest earners.”

The Yuan Joins Elite Class Joining The International Monetary Fund

(This article is the courtesy of the Shanghai Daily News)

Yuan joins elite club of reserve currencies

THE yuan’s inclusion in the International Monetary Fund’s elite reserve currency basket on Saturday was hailed by Chinese businesses and analysts as a “historic moment.”

“Ten years ago, the yuan could hardly go out of the country. But now China’s opening-up and huge economic size has made it more and more popular in the international market,” said Lu Jian, vice president of Guangdong Guangken Rubber Group Co Ltd.

Early this year, Guangken Rubber launched a US$270 million bid for Thailand’s Thai Hua Rubber, the world’s third-largest rubber producer.

The company then sought loans from domestic and overseas banks, with some offering to fund its bid in yuan.

The acquisition in yuan helps reduce foreign exchange risks as well as fund-raising costs, said Lu.

“Ten years ago, all our overseas business was conducted in the US dollars and we often did not have yuan clearing banks. It’s quite a different scenario now,” he said.

Today, China has 21 overseas yuan clearing banks across the world.

“Despite the fluctuations in the exchange rate, the international market has not lost interest in the yuan and on the contrary, global demand is increasing,” Lu said.

On Friday, the IMF announced the launch of its new Special Drawing Right basket, including the yuan, effective from Saturday, saying it was a “historic milestone” for China, the IMF and the international monetary system.

The inclusion makes the yuan one of the five reserve currencies fully endorsed by the 189-member organization, joining the US dollar, the euro, the Japanese yen and the British pound.

Now, the yuan accounts for the third-largest share of the new SDR basket with 10.92 percent, following the US dollar’s 41.73 percent and the Euro’s 30.93 percent.

“The yuan’s inclusion reflects the progress made in reforming China’s monetary, foreign exchange and financial systems and acknowledges the advances made in liberalizing and improving the infrastructure of its financial markets,” IMF Managing Director Christine Lagarde said.

The yuan has moved into the top 10 but still trails the other major currencies, according to the Bank for International Settlements.

Created in the 1960s, the “Special Drawing Right” is a unit of account used by the IMF as a foreign exchange reserve asset and is not a freely traded currency. To help manage financial crises, the IMF issues loans to member countries denominated in SDRs.

In July 2009, China approved pilot program for cross-border trade settlement in yuan, embarking on the internationalization process of the currency.

The yuan was the fifth most active currency for global payments by value in July, with a share of 1.9 percent, an increase from 1.72 percent in June, according to data from global transaction services organization SWIFT.

China’s central bank said on Saturday that the country will continue to push forward financial reforms and market opening after the yuan’s inclusion.

Zhang Lijun, a partner with Price Water House Coopers China, said the yuan’s inclusion was of similar significance to China’s joining the World Trade Organization.

“The two cases also have shown that China helped to improve rather than topple global rules and this has positive significance for the coordination of global economic governance,” said Zhang.

IMF Urges The G20 Nations Leaders Meeting In China To Grow Some Balls

(This article is courtesy of the Shanghai Daily News Paper)

Strong action plea to G20 leaders

THE International Monetary Fund is calling on G20 leaders to take much stronger action to boost demand, revive flagging trade, make long-delayed structural reforms to economies and share growth more broadly.

In a briefing note to heads of state of the G20 group of leading economies ahead of their summit in Hangzhou on Sunday and Monday, the IMF said yesterday that they had fallen far behind in their 2014 goals to boost collective growth by 2 percentage points within five years.

It said its research showed the growth of goods and services trade volumes had slowed in most countries since 2012 to half the pace in the two decades to 2007.

“While three-fourths of this drop can be traced to weaker economic activity, notably weak investment, the waning pace of trade liberalization and a recent uptick in protectionist measures have added to the downward momentum,” the IMF said. “Such reductions in global trade can feed back to lower GDP growth.”

It urged the leaders to “make the positive case for globalization” and portray trade as “a tool to improve lives.” It said they should adopt policies to foster innovation and new industries and improve labor mobility.

“It is easy to blame trade for all the ills afflicting a country, but curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” IMF Managing Director Christine Lagarde said.

“However, to make trade work for all, policy-makers should help those who are adversely affected through re-training, skill building, and assisting occupational and geographic mobility.” The IMF is nonetheless likely to downgrade its economic growth forecasts further, she said.

The IMF also repeated its view that monetary policy be kept accommodating to fight low inflation and said countries with the fiscal space should pursue needed public investments in infrastructure and support growth by avoiding direct tax increases on consumers. Some should also use public funds to help rebuild financial sector balance sheets.