MercoPress. South Atlantic News Agency

China first to buy 50 billion USD in IMF bonds

The agreement was signed by IMF chief Dominique Strauss-Kahn and Yi Gang from the People’s Bank of China

China has agreed to buy the first International Monetary Fund bonds for about 50 billion dollars, the IMF said Wednesday. IMF managing director Dominique Strauss-Kahn and the deputy governor of the People’s Bank of China, Yi Gang, signed the agreement in Washington.

Under the agreement, the Chinese central bank ”would purchase up to SDR 32 billion (around 50 billion dollars) in IMF notes,“ it said.

An SDR is an interest-bearing IMF asset based on a basket of international currencies -- the dollar, yen, euro and pound -- that is calculated daily and which members can convert into other currencies.

”The note purchase agreement is the first in the history of the IMF” said the multilateral institution. China in early June said it could invest up to 50 billion USD in IMF bonds.

The issuance of bonds is an unprecedented step to boost IMF resources as the institution struggles to provide financing to help member nations cope with the global financial and economic crises. The IMF executive board approved the plan to issue notes to governments on July first.

In related news European Union (EU) finance ministers agreed on Wednesday to increase their contributions to the IMF lending resources.

“We have to put our money where our mouth is and obviously, going to London and going to Pittsburgh, we will have to commit to increasing our support,” Swedish Finance Minister Anders Borg, whose country holds the EU rotating presidency, told reporters after an informal meeting with his EU counterparts in Brussels.

“There is agreement that 125 billion is a position that we have a common view on from Europe,” Borg said.

EU leaders had previously pledged to provide 100 billion US dollars to increase their share of the IMF New Arrangement to Borrow, or NAB, as part of the global deal reached at the G20 summit in London early April to triple IMF lending resources to a total of 750 billion US dollars. So far, the world's major economies have committed 411.5 billion to IMF.

Ahead of the meeting, Germany, France and Britain all said they were ready to contribute more to boost IMF lending resources, with the total amount of their additional funding already more than 25 billion dollars.

Apparently United States and Japan have pledged to provide 100 billion USD each.

The announcements are in anticipation of the G20 Finance ministers meeting this weekend in London in preparation for the G20 summit to be hosted by President Obama in Pittsburgh at the end of the month.