Britain backs eventual yuan inclusion in IMF's SDR basket

(Adds French disappointment with British move on Asian bank)

By Randall Palmer

WASHINGTON, April 17 (Reuters) - Britain favors the eventual inclusion of the Chinese yuan in the International Monetary Fund's SDR basket of currencies, finance minister George Osborne said on Friday, saying it was important to include emerging powers in the world system.

French Finance Minister Michel Sapin, however, voiced disappointment with Britain's surprise decision last month to join the Beijing-led Asian Infrastructure Investment Bank (AIIB) on its own, instead of taking a joint Western approach on the issue.

The internationalization of the yuan and the creation of the AIIB are part of China's efforts to take a more dominant role in global finance, and advanced economies have not been in total agreement on how to respond.

"I think our approach to China is one that reflects the very best of British values, which is we want to involve and include important emerging powers in the world system, and I don't think it's sensible to shut important economies ... out from the institutions of the world," Osborne told reporters during the spring meetings of the IMF and World Bank.

Britain was the first member of the Group of Seven (G7) leading industrialized countries to announce its intention to join the AIIB, about which the United States and Japan have expressed reservations.

A reporter asked Sapin on Friday if he was surprised and disappointed by the British decision to go it alone, which he said went contrary to G7 intentions.

"Surprised? No. Disappointed? Yes, because what we had decided to do was to look at this question together and to act together if possible. That's what we did at the level of the euro zone," he said. "Britain chose a different route."

In the end, the other three European G7 members, France, Germany and Italy, quickly followed suit, and G7 member Canada then announced it was actively considering joining.

Sapin said France decided to take part "because it's interesting," adding that it was imposing conditions on governance, anti-corruption and other issues.

A British official, speaking on condition of anonymity, took issue with the idea that Britain had broken ranks with the G7, saying it had made clear its intentions to get in on the ground floor of the new multilateral bank.

Referring to the AIIB, Osborne said Britain was focused on "helping to ensure that ... new institutions operate on the principles of transparency and integrity, that we like to see in all international organizations."

The yuan, also known as the renminbi, will be considered by the IMF later this year for inclusion in its Special Drawing Rights (SDR) basket of currencies.

"That is something that's under discussion now, and clearly at some point it will be sensible, as part of the internationalization of the renminbi, to see the renminbi come into the basket," Osborne said.

"The UK has been at the forefront of trying to encourage the internationalization of the renminbi, and London has become the preeminent Western center for renminbi issuance," he said. (Reporting by Randall Palmer; Editing by Andrea Ricci and Paul Simao)