–Spells Out Agenda, Priorities For Reform of Monetary System

PARIS (MNI) – By calling for a reform of the world monetary system,
France has no intention of calling into question the role of the U.S.
dollar, French President Nicolas Sarkozy said Monday.

Sarkozy, speaking at a press conference at the Elysee Palace,
spelled out France’s ambitious agenda for tackling global financial
instability, growing payments imbalances and the institutional monetary
order.

However, “France has no desire to call into question the U.S.
dollar,” he said. “The dollar plays a prominent role and should be
strong.”

Noting the dollar’s disproportionate weight in world currency
reserves, he said it was and will remain “the preponderant” currency of
the world. “But preponderant currency does not mean the only currency,”
he said.

“Who could think we could replace the dollar with the [IMF's]
SDRs?” Sarkozy said, dismissing a proposal raised last year by some
major emerging countries, including Brazil and Russia.

Though it is important to reform global monetary relations, it is
“an error” even to speak of instability in the world monetary system,
Sarkozy said. “There has not been a global monetary system since 1971,”
he argued — referring to the year then US President Richard Nixon
severed the dollar’s tie to the gold standard.

The French president noted a huge acceleration in financial
volatility in recent years as foreign exchange transactions have grown
at a huge clip, now standing at $4 trillion per day, and payment
imbalances among the major countries have expanded at breathtaking
speed.

He said that France, which took over the presidency of the G20 at
the beginning of this year, wants to foster a debate on reforming the
financial system. This will include a group on monetary system reform,
to be co-presided by Germany’s Chancellor Angela Merkel and Mexico and
the design of criteria — a sort of index — for measuring payment
imbalances, to be evaluated by the IMF and followed up with an agreement
among G20 countries to converge around those criteria.

Another thing that must be tackled, Sarkozy said, is the “need to
accumulate foreign exchange reserves.” He criticized what he called the
“unproductive accumulation of foreign exchange reserves,” which he said
“weighs” on the global economy.

Sarkozy said he would travel to China at the end of March for a
first meeting of the group tasked with reflecting on the world monetary
order. He expressed his gratitude to China’s President Hu Jintao for
hosting the meeting, which he said “wasn’t easy.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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