China to Buy US$ 50 Bln of IMF Notes

飞雪寒冰

China has agreed to buy around US$50 billion worth of International Monetary Fund notes, the IMF said in a Sept. 2 press release.

Deputy Governor of the People's Bank of China Yi Gang signed the agreement with IMF Managing Director Dominique Strauss-Kahn, according to the statement.

The agreement is the first in the history of the fund, said the statement.

This is contrary to analysts' expectations that China would pay in dollars to diversify channels for its US$2 trillion-plus worth of foreign exchange reserves.

"The IMF is likely to exchange the yuan for U.S. dollars with China," Zhang Bin, an international finance researcher at the Chinese Academy of Social Sciences, told Caijing on Sept.2. "This can also help China diversify its foreign reserves."

"The IMF can also directly provide yuan loans to member countries," Zhang said, adding that this could help the yuan strengthen its standing  as a global currency.

飞雪寒冰

The IMF decided in July to issue notes with a maximum maturity of five years to member countries. Interest rate is paid quarterly based on the average Special Drawing Right (SDR) interest rate for the preceding quarter.

The notes are "a safe investment instrument" that offer a reasonable return for China, and will boost the IMF's capacity to help its members cope with the global financial crisis and facilitate an early recovery of the global economy, the statement said.

The fund granted China US$9.3 billion worth of SDRs in a general allocation to boost global liquidity on Aug. 28. The general allocation, agreed at the G20 London summit in April, will give the IMF's 186 members a total US$250 billion worth of SDRs.

China is also due to receive US$1.2 billion in SDRs in a special allocation due Sept. 9.