PARIS (MNI) – Exchange rate volatility, abrupt swings in capital
flows and the accumulation of forex reserves — key issues on France’s
agenda for the G20 this year — are indeed “risks” for the global
economy, European Central Bank Governing Council member Christian Noyer
said in a newspaper interview released Friday.

“The problems posed by the volatility of capital flows are very
difficult to resolve,” the governor of the Bank of France told the
French daily Le Monde.

The dilemma is to create a “toolbox”, with mechanisms to dampen
abrupt capital movements, without creating controls on flows, which
would be dangerous for the economy, he explained.

The immediate task for the G20 finance ministers and central
bankers meeting here through the weekend is to draw up a list of
indicators, for example covering public deficits, private savings,
current account balances, real exchange rates and forex reserves, to
assess imbalances in the economy.

“The idea is to find a list that is long enough to take account of
the principle imbalances, without pointing the finger at a small number
of countries,” Noyer explained.

“Once the risk factors are identified, we can look for strategies
of improvement; corrective economic policies that allow stronger and
especially more sustainable growth,” he said.

Since the G20 has no regulatory or coercive powers, the method
depends on “concertation and good will,” he said. “We will succeed if
each participant is persuaded that this exercise is in everyone’s
interest.”

Concerning the idea of integrating the Chinese yuan in the basket
of currencies on which the IMF’s special drawing rights (SDR) are based,
Noyer said that China’s weight in the global economy would justify the
move. However, since the SDR currencies are all freely convertible,
which is not the case for the yuan, “the issue is rather to see how to
program its entry into this basket and what would be the theoretical
time-frame,” he said.

Noyer reiterated that the tax on financial transactions proposed by
France to fund the fight against global warming would have to be levied
in all countries, including non-cooperative ones. “Otherwise, this would
lead to a massive shift of financial transactions to tax havens, and I’m
not sure this result would be satisfactory.”

–Paris newsroom +331 4271 5540; e-mail stephen@marketnews.com

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