China’s interventions to stem its stock market turmoil should not derail its bid to gain reserve status for its currency, the International Monetary Fund managing director has said, predicting that the country’s economy is strong enough to withstand the equity ruckus.
Christine Lagarde endorsed Beijing’s efforts to calm its stock market, playing down the declines in Shanghai to date as she pointed out that the market was still up 80 per cent on a year ago.
“We believe that the Chinese economy is resilient and strong enough to withstand that kind of significant variation in the markets,” she said in an online question and answer session.
China is seeking to gain admission for the renminbi to the IMF’s basket of currencies making up its special drawing rights, or SDRs. The SDRs are funds that member countries can draw on in a crisis, and the inclusion of the Chinese currency in the basket of elite currencies would be an endorsement of its efforts to open up its financial system and a boost to the country’s prestige.
The sell-off in Chinese shares in recent weeks has prompted official interventions, including bans on sales of large stakes and liquidity measures to prop up values, triggering questions about the country’s financial stability and commitment to liberalising markets.
Ms Lagarde said observers should not be surprised that the Chinese authorities wanted to avoid a “disorderly functioning” of these markets. “That is the duty of central authorities,” she said. “The fact that they want to maintain a level of liquidity that is commensurate with an orderly process is quite good.”
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