SCHUMER, GRAHAM: AFTER CHINESE CYBER-ATTACK ON U.S. GOVERNMENT PERSONNEL RECORDS, THE IMF SHOULD DENY CHINA’S EFFORT TO MAKE THE YUAN A RESERVE CURRENCY UNTIL THEY STOP RAMPANT HACKING AND CYBER-ATTACKS
During Unprecedented Cyber Attack, Chinese Hackers Obtained Personnel Records for Millions of Government Employees – Senators Demand Firm and Fast Response
China Is Seeking to Have the Yuan Considered a Reserve Currency at the End of 2015 – Schumer & Graham Say IMF Should Withhold the Designation China Wants Until They Stop Vicious Cyber Attacks
Schumer, Graham: If China Wants To Be a Responsible Member of the Global Community, It Must Act Like One
Today, in response to a cyber-attack originating in China that exposed the personnel records of 4 million federal employees, U.S. Senators Charles E. Schumer and Lindsey Graham called on the International Monetary Fund (IMF) not to allow China’s yuan to be designated a reserve currency until China stops their rampant cyber-attacks and refrain from manipulative currency practices. China is pushing to have the IMF vote to allow the yuan to be recognized as a global reserve currency in December of 2015. Senators Schumer and Graham wrote today to IMF Managing Director Christine Lagarde, urging the IMF not to entertain the possibility of making the yuan a global reserve currency until China abandons its hacking program.
“This recent cyber-attack is one of China’s most brazen yet,” said Schumer. “It is long past time for the international community to rally together and make crystal clear to the Chinese government that if they want to be treated as a leading nation on the global stage, then they need to start acting like it. Until China curtails their hacking operations, the IMF shouldn’t designate the yuan as a reserve currency. We need to punish China’s bad behavior, not reward it.”
Schumer and Graham’s letter to Managing Director Lagarde appears below:
Managing Director Lagarde,
We understand that the IMF Board will meet informally in the coming weeks to assess whether economic changes merit adjustments to the International Monetary Fund’s (IMF) basket of emergency lending reserves that make up the Special Drawing Rights (SDR) system. Wewrite to express our deep concern with the IMF’s potential consideration of the yuan for inclusion in its SDR system. We have had reservations with the IMF’s consideration of including the yuan into the SDR basket previously; China’s currency has long been undervalued due to the direct actions of China’s government.
However, we believe that China’s most recent involvement in the acts of cyberespionage that led to the breach of personal records of at least four million American government workers provide another example of China’s rapacious actions that are aimed at disrupting the global economy and undermining the stability of international market participants.
Recent reports indicate that China was also responsible for the data breach of personally identifiable information of over 90 million customers of two American health care firms just four months ago. Thus, China’s most recent actions this week are just the latest in a litany of egregious actions, or inactions, that reflect the government’s lack of an ability to participate in an honest and transparent manner on the global stage. This behavior cannot be rewarded by the international community, but more importantly, the Chinese government cannot be trusted to uphold international market standards without demonstrated evidence of a commitment to reform. China has failed to make the necessary reforms to be considered a trusted and fair player on the international stage, and we therefore, urge the IMF to forego any consideration of the yuan’s inclusion in the IMF’s SDR.
The IMF has a responsibility to only assign currencies to its SDR basket if the currency is deemed to be “freely usable” in international markets. This requires that the currency is convertible and it is clear that the yuan is not. China still maintains controls on capital and its exchange rate. While we support China’s efforts to modernize its currency and agree that its efforts to be eligible for the SDR basket are in line with financial liberalization standards that prevent currency manipulation, we do not believe that China’s efforts have been substantial enough, nor do we believe that their commitment has been demonstrated in a way that can be counted on consistently, especially when market pressure for the yuan to be strengthened increases.
China has failed to fully liberalize its capital account and thus has not achieved a sufficient degree of capital account convertibility to be eligible for the IMF’s SDR. We agree with Secretary Lew’s statements in which he said that “further liberalization and reform are needed for the yuan to meet this standard.” Further, to date, China has been unwilling to remove restrictions and allow yuan interest rates to be market-based. Notably, China still has an administrative cap on bank deposit rates. Therefore, we believe that China’s currency continues to be undervalued and should not be eligible for consideration to be included as part of the SDR basket before these necessary reforms have been made.
China’s inability to adequately liberalize its own currency and its capital flows in a manner necessary to satisfy the IMF’s clear standards provides sufficient basis for the executive board to deny its inclusion in the SDR basket, and before the yuan is considered a reserve currency, China must also make significant progress in strengthening its financial regulation and supervisory systems. These regulatory and supervisory protections are necessary to ensure trust and confidence in China’s currency, in addition to helping ensure the security of global financial markets. But these current deficiencies, coupled with China’s most recent role in the hacking of personally identifiable records of over 90 million Americans, must be instructive to your views and validation that China remains a real threat to the stability of the IMF and our global economy at large.
Thanks you for your consideration of these issues and please feel free to contact us me or members of our staff to discuss this matter further.
U.S. Senator Charles E. Schumer
U.S. Senator Lindsey Graham