April 14, 2015 / 3:48 PM / in 3 years

UPDATE 1-Canada actively considering joining China-led Asia bank

(Adds remarks on AIIB, currency movements and yuan inclusion in IMF basket)

By Randall Palmer

OTTAWA, April 14 (Reuters) - Canada broke its silence on Tuesday over whether it would take part in the China-led Asian Infrastructure Investment Bank, signaling it was actively considering joining the institution despite U.S. and Japanese reservations.

A senior Canadian finance official revealed the stance to reporters ahead of meetings in Washington of the Group of 20 (G20) leading economies, saying Ottawa welcomed the idea of a new Asian infrastructure investment bank.

The official, speaking on condition of anonymity, said Ottawa wanted to make sure the AIIB’s governance met the high standards expected of such an institution and would take the time needed to ensure it was something Canada would want to join.

Britain surprised some allies last month in deciding to join the AIIB, and was quickly followed by Germany, France and Italy. Among the Group of Seven (G7) industrialized countries, only the United States, Japan and Canada remain as absentees.

Washington had urged countries to think twice before signing up to the bank, which it sees as a rival to the U.S.-dominated World Bank.

The Canadian official also said the G20 would talk about the increased risks from foreign exchange volatility, including legitimate worry of the impact of the U.S. dollar’s rise on emerging markets.

The G20 has pledged not to target exchange rates for competitive purposes, but the official said he didn’t see countries deliberating moving their currencies but rather the currencies moving in response to monetary policies and economic conditions.

Pointing to the euro, for example, he said it had fallen in response to quantitative easing and to European economic weakness.

The communique is more likely to focus on fundamental risks to the economy than on exchange rates being a cause in and of themselves, he said, but the G20 would need to be alert to concerns that might arise in emerging markets.

He noted Bank for International Settlements research on the challenge to emerging market companies which borrow in U.S. dollars, and whose interest costs therefore rise if their currencies depreciate against the greenback.

Regarding China, another live issue this year is Beijing’s desire to have its yuan included in the basket of currencies that make up the International Monetary Fund’s Special Drawing Rights.

But the official said the IMF Executive Board would only start discussing this in May, with no decisions before the autumn, and he said Canada would take a position once it had the IMF’s assessment. (Additional reporting by Leah Schnurr; Editing by Chizu Nomiyama and Meredith Mazzilli)

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