(Yicai Global) July 31 -- International Monetary Fund (IMF) Managing Director Christine Lagarde's suggestion that the Fund's headquarters might move to Beijing in 10 years' time is a sign of her recognition of the importance of emerging markets and economies including China, but should not be taken literally, Jin Zhongxia, IMF executive director for China, told Yicai Global in an exclusive interview.
Jin said Lagarde's remarks are aimed at highlighting the new trends and change of direction in global economy under which emerging markets are gaining ever increasing importance in a steady fashion. However, her words about the possible timeframe and assumption need not to be taken literally.
"Lagarde's remarks can be taken as her recognition of importance of emerging markets including China, which is also a warning to developed countries," Jin said.
IMF Managing Director Lagarde said on July 24 the Fund's headquarters might move to Beijing in a decade if growth trends for China and other emerging markets continue and these are reflected in the IMF's voting structure.
However, Jin said, "IMF's Articles of Agreement specify that the headquarters of IMF shall be located in the member country with the largest shares, "Even if GDP is taken as the only criterion, I think China may possibly catch up with the US in two decades but virtually impossible to do so in 10 years."
So far, China has 6.41 percent quota share within the IMF, with a voting right of 6.09 percent, while Japan has 6.58 percent quota share with 6.15 percent voting right. In contrast, the US holds 17.46 percent quota share in the Fund, while its voting right is 16.52 percent.
Although China saw some increase in its share and voting rights within the IMF there is still a significant gap with the US. Moreover, apart from maintaining the largest share and voting rights, the US can wield veto right concerning any major reform in IMF's voting structure as it requires 85 percent of voting rights.
"The Fund's existing quota formula also underestimates the US. For instance, the US almost has no forex reserves which is counted as part of the formula, but its ability of printing dollars, a reserve currency, is limitless. In contrast, although China comes out on top in terms of foreign exchange reserves, its reserves are mainly comprised of the dollar and the euro. While the yuan was recently included in the SDR basket of currencies, there is still a long way to go for the Yuan's internationalization which requires continued reform and opening. It takes time and probably more than 10 years. ," Jin said.