IMF welcomes China's move to improve forex formation system

WASHINGTON - The International Monetary Fund (IMF) on Tuesday welcomed China's move to improve its foreign exchange formation system and said a more market-oriented exchange rate would facilitate the Special Drawing Right (SDR) operation if yuan was included in the basket.

"The new mechanism for determining the central parity of the yuan announced by the People's Bank of China (PBC) appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate," an IMF spokesperson said in a statement on Tuesday.

The spokesperson said that greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets. The IMF also said China has the ability to achieve an effectively floating exchange rate system within two or three years.

In regard to the IMF's ongoing review on whether yuan will be included in the SDR basket or not, the spokesperson said China's move has no direct implications for the criteria used in determining the composition of the basket.

But the spokesperson added that a more market-oriented exchange rate would facilitate SDR operation in case the yuan were included in the basket.

The People's Bank of China on Tuesday announced the decision to improve its central parity system to better reflect market development in the exchange rate between the Chinese yuan against the US dollar.