The International Monetary Fund is discussing ways to broaden the currency basket that makes up its Special Drawing Rights unit of account, part of broader efforts to modernize the global monetary system.

The IMF's decision-making board met on October 28 to discuss options for broadening the basket to include currencies such as the Chinese yuan.

Such changes would reflect the growing role emerging economies such as China, India and Brazil are playing in the world economy.

The SDR is currently composed of the U.S. dollar, British sterling, the euro and the Japanese yen.

During the board discussion, the IMF said some directors cautioned that the bar for newcomers to join the currency basket should not be lowered and it was important to safeguard the SDR as a reserve currency.

Among the drawbacks for the Chinese yuan is that the currency is not considered freely traded and China's capital markets are largely closed. Therefore, it does not qualify under the SDR's current criteria as freely usable.

One option the IMF is considering is to replace the freely usable criteria. (IMF) directors were open to exploring alternatives to the 'freely usable' criterion, the IMF said.

The IMF board said the size of the SDR basket should remain relatively small to avoid adding undue costs and complexity for SDR users.

There were also discussions about whether a new currency would replace or be added to the existing SDR basket, however, directors agreed that could be assessed on a case-by-case basis.

The SDR is itself not a currency and is only used as a reserve asset by central banks. It is not available to the private sector.

There is an ongoing debate among global policymakers over the U.S. dollar's status as the main global reserve currency, with some emerging economies arguing that the SDR should play a greater role.

In 2009, the Group of 20 authorized $250 billion (155 billion pound) worth of SDRs to be issued among the IMF's member countries to boost global liquidity, ensuring countries have easier access to foreign exchange funding.

Currently, the euro zone is talking about pooling its SDRs to help fight the sovereign debt crisis.

(Reporting by Lesley Wroughton; Editing by Andrea Ricci and Andrew Hay)