(Adds comments on yuan revaulation, G20, Asia conference)
WASHINGTON, June 28 (Reuters) - The head of the IMF said on Monday he would like to consider putting the Chinese yuan into the basket of currencies that make up the Fund’s Special Drawing Rights “the sooner the better”, but its value first needed to be freely determined by the market.
Dominique Strauss-Kahn told reporters in a news briefing that he believed there would be more pressure to include yuan, also known as the renminbi, among SDR currencies as China’s economic clout grows.
“This question has to be considered. I think it will be difficult to include the renminbi before the renminbi really has a market price and is in one way or the other a floating currency. But but the sooner, the better,” he said. “Because as time goes by there are more and more reasons to include other currencies in the SDR basket -- starting with the renminbi.”
The IMF’s Special Drawing Rights, the Fund’s internal unit of account, has often been suggested as a global quasi-reserve currency alternative to the dollar. Its value is based on a basket of dollars, euros, yen and sterling.
China this month said it would resume a policy of greater exchange rate flexibility for the yuan after keeping it pegged at about 6.83 to the U.S. dollar for the past two years. The move is expected to lead to a gradual rise in the yuan’s value against the dollar.
By Friday, the yuan CNY=CFXS had reached a three-year high of 6.790 to the dollar, but it eased back on Monday to 6.797 after China successfully excluded any mention of the yuan -- positive or negative -- from the Group of 20 summit communique over the weekend.
Strauss-Kahn said a inclusion into the SDR basket would imply that the yuan was fully integrated into the markets, and the policy shift taken last week was a step in that direction.
”I do not expect that things are going to change very rapidly, he said. “We still believe, as when we did a general review of this, that the renminbi is undervalued. But of course the move, which is starting, will progressively correct this feature.”
However, Strauss-Kahn noted that even a strong upward revaluation of the yuan would not solve all of the world’s trade and financial imbalances.
“Of course, the revaluation of the renminbi goes in the right direction, and we’re still pushing for this,” he said. “But there are a lot of other sources of imbalances which will not be addressed only by changing the currency. So the move is welcome but it will take time for the renminbi to reach its normal market value.”
Strauss-Kahn met with reporters ahead of a conference the IMF and South Korea are is hosting next month in Daejeon, South Korea, to examine Asia’s rapid recovery from the financial crisis.
The IMF chief said the conference in part was a bid to repair damaged relations with Asia caused by harsh terms imposed by the Fund on a number of Asian countries during the late 1990s Asian financial crisis.
Strauss-Kahn, who took charge of the Fund in 2007, said the fund’s mission was to contain the crisis in countries like South Korea, Thailand and Indonesia and clean up their financial sectors. That may have helped them through the current crisis, but it extracted a heavy toll on growth and hardship for their people.
“Looking backward it appears that it probably could have been done another way and we’ve learned a lesson from this,” Strauss-Kahn said. “The way the Fund is operating today in many countries including central Europe is probably very different from the past.”
In countries like Latvia, Hungary and Pakistan, the Fund is not trying to fix all of their problems at once, just taking steps needed to address their crises, he said.
Turning to the G20 summit in Toronto, Strauss-Kahn acknowledged the need for differences in fiscal policy among different countries, but said that did not mean a lack of consensus in the group.
He said the G20 had found “the beginnings” of consensus on financial sector reforms and “want to find a way to agree” on common capital standards for banks.
“The momentum, the will to work together, to go on coordinating economic policy, is still very strong and that, I think, really is the good news,” he added. (Reporting by David Lawder)