September 3, 2009

China to buy $50B of IMF bonds

China's central bank will buy the International Monetary Fund's first set of bonds totaling about $50 billion, the IMF announced.

The purchase agreement with the People's Bank of China is the first such in the Fund's history and calls for the Chinese entity to invest up to $50 billion in IMF notes or Special Drawing Rights.

SDRs are interest-bearing reserve assets and a country holding them can convert them into hard currencies. Some countries reportedly have volunteered to arrange for the buying and selling of SDRs.

The bond sale is part of the IMF's effort to increase liquidity to fight the current global recession by boosting its members' reserves through SDR allocations. As much as $283 billion in allocations were announced at the Group of 20 summit last April in London.

When completed, the IMF's outstanding stock of SDRs would total about $316 billion.

IMF Managing Director Dominique Strauss-Kahn said the Chinese investment will help boost the Fund's lending capacity especially to developing and emerging markets and at the same offer investing countries safety and reasonable returns.

Xinhua news agency said besides China, Brazil, Russia and India, which together constitute what is called the BRIC countries, are potential buyers of the IMF bonds.