China Calls for Automatic IMF Voting Adjustments

China on Sunday called for an overhaul of the International Monetary Fund's voting system with automatic adjustments to give more say to rising economic powers.

In a statement to the IMF's steering committee, Yi Gang, a vice central bank governor, laid out China's broad vision for reforms at the Fund, emphasizing that Beijing wanted the organization to play a bigger role in regulating global financial markets but only so long as developing nations were given more clout.

"The IMF should establish a system to automatically adjust (voting) quotas and to reflect changes in countries' economic status in a timely manner," Yi said in comments posted on the central bank's website.

Because countries need to pump money into the IMF for any given quota increase, China's proposal would increase Fund resources as it shifts voting power from over-represented rich countries to fast-growing emerging nations.

Yi said "a major reason" why international institutions had failed to anticipate the global financial crisis was that they lacked adequate representation from emerging economies.

He also said the IMF should desist from simplistic analyses of national economic policies, a thinly veiled warning to the organization to avoid criticizing on Beijing's controversial, tightly managed exchange rate regime.

Best Way Forward

Yi said the IMF had many channels to raise cash but that increasing quotas was the best way.

China pledged this year to give the IMF up to $50 billion by buying bonds, but, like Russia and Brazil, it made clear that its contribution would not be permanent unless developing countries were given more power.

He also said Beijing thinks the IMF has a role to play in keeping exchange rates stable. "It should strengthen its supervision of international capital flows and encourage the relative stability of exchange rates of the main reserve currencies," he said.

Group of 20 rich and developing nations agreed last month that the IMF should make recommendations about how countries can adjust their policies to better balance the global economy.

Getting big exporting nations such as China to increase consumption is one essential part of rebalancing, but Beijing has bristled at suggestions that it should let the yuan appreciate to curb reliance on exports and help meet that goal.

No Simplistic Assessments

While Yi did not explicitly mention the yuan, he was firm in drawing a line in the sand.

"The IMF should strengthen its supervision of all major financial markets and it should comprehensively consider all policies of its member states," he said. "However, it should not simplistically, mechanically assess individual policies."

Yi told Reuters on Saturday that China's exchange rate policy was very clear and that it had no intention of changing it.

While Beijing has repeatedly declared it is moving to allow more currency flexibility, the central bank has kept the yuan almost flat against the U.S. dollar since July 2008, when the global financial crisis began worsening.

On China's domestic outlook, Yi said the economy, which grew 7.9 percent year-on-year in the second quarter, was developing "better than predicted" and that fiscal and financial risks were "under effective control."

"At the same time, China will also be vigilant and guard against all kinds of latent risks, including inflation," he said

China's consumer prices have fallen for six straight months, but economists think the pace of decline may have bottomed out, setting the stage for a potential rebound in inflation, fueled by a record surge of bank lending in the first half of this year.

Yi said the global economy had taken a turn for the better, but that the foundations of recovery were not solid yet.

"The major risks to the global economy include trade and investment protectionism and lack of coordination in macro-economic policies," he said.

- Via CNBC