Epoch Times: What do you think about China becoming part of the IMF’s reserve currency basket?
Prof. Reinhart: In the COFER [the composition of foreign exchange holdings], the participating countries report quite a bit of detail. On the profile of their reserve holdings, and of their intervention. That is a step toward transparency which I think is coming at a good time.
Epoch Times: What about an increase in voting rights?
Prof. Reinhart: Well, I think quotas are very dated. If you look at the share of quotas and you compare the share of quotas to the share of world GDP, you see that the quotas are reflecting GDP shares from an earlier era. Not just China, but emerging markets in general expanded their global presence.
Europe, with a lingering crisis and fairly anemic growth by comparison saw its share in world GDP diminish, so right now you still have a significant gulf between quota shares and today’s GDP shares. Just where they are right now I think those quota shares are going to move closer to reality.
Epoch Times: Is the United States going to keep its veto power at the IMF?
Prof. Reinhart: That’s going to be a hard one. My inclination would be to say that’s still a ways away but I do think that increased voting shares for emerging markets is part of catching up with reality.
Epoch Times: Do you think the actual entry could be delayed?
Prof. Reinhart: Well it may be. Look, these things we’re dealing with are big steps. Whenever you have big steps, the prospects for delay are always there.
I don’t know if it’ll adhere to the expected progression but I do expect it to happen. I think that we will get, perhaps, not as quickly as we would like, more disclosure.
Having such a big player in the world economy with the very opaque financial situation of China is a big source of global uncertainty. China having an increased quota at the IMF will also be a source of pressure for more disclosure.