“Greater supervision by the IMF” of nations’ balance of payments and reserves “appears indispensible,” Sarkozy said yesterday at a one-day seminar ahead of the summit.
For him, the proposal can become operative right away. “France supports modifying the IMF’s status to expand its oversight capacity,” he noted. This can counter what he views as a “proliferation of unilateral measures during crises resulting in a new financial protectionism in which all economies suffer”.
The G20, currently chaired by France, has been discussing ways to improve currency market stability and prevent currency wars.
Western nations, led by the United States, have been pressuring China to revalue the yuan, seriously underestimated in their view (by up to 40-45 per cent), and unjustly boosting Chinese exports on world markets.
The US Federal Reserve recently decided to buy hundreds of billions in US treasury bills, a measure many see as a way to tinker with the exchange rate at the expense of other currencies (see Maurizio d’Orlando, “Currency wars and the Fed’s demise,” in AsiaNews, 19 November 2010)
The French proposal has not been welcomed by either the Chinese or the Americans. “Global monetary reforms should be carried out in a pro-active and gradual way. The reform process will be a long-term and complex process,” Chinese Vice Premier Wang Qishan said in his opening remarks at the summit.
Years ago, Beijing first raised the issue of replacing the US dollar as the currency of reference with SDRs (see “Beijing reaffirms the urgent need to replace the dollar with a global currency,” in AsiaNews, 27 June 2009). However, it also does not want to lose control over its own currency.
As a barb against the French proposal on currency market reform, Chinese President Hu Jintao during a meeting with Sarkozy yesterday spoke about the crisis in Libya.
“The aim of the UN's resolution is to stop violence and protect civilians,” he said. “If the military action brings disaster to innocent civilians and creates a bigger humanitarian crisis, that would violate the original intention of the Security Council resolution”.
US Treasury Secretary Timothy Geithner also criticised the French plan. For him, the biggest flaw in the current situation is the inconsistency in exchange rate policies. In a thinly veiled reference to China, he noted that some emerging countries ran tightly managed currency regimes that fuelled inflation risks in their own economies, magnified appreciation pressures in others and led to calls for protectionism.
Before any change is made to the SDR, countries “should have flexible exchange rate systems, independent central banks and permit the free movement of capital flows,” Geithner added.
At some level both Washington and Beijing do not want to rock the boat, the Americans because they do not want the dollar to lose its role as a currency of reference, and the Chinese do not want any sudden changes. As the world’s largest holder of foreign currency, two thirds in US dollars or US Securities, any rapid depreciation of the US currency would negatively affect China’s huge reserves.
Experts believe that Sarkozy himself does not expect any immediate results but rather that he is preparing the ground for the G20 summit in Cannes (France) in 2012. The goal is not only to seek a more “stable and resilient” monetary order, but also prepare himself for France’s presidential elections.