–Adds Fuller Quotes On Monetary System; Comments On Commodity Prices

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 a
misconception even to speak of a world monetary system, Sarkozy argued.
“When people talk of currency wars, the truth is that we have been
living with the instability of the international monetary non-system
since 1971,” he said, referring to the year when U.S. President Richard
Nixon severed the dollar’s tie to the gold standard. “To say there is a
monetary system is an error. We haven’t had one since 1971.”

But he quickly clarified that, “France does not want to return to a
fixed currency regime.”

Still, the French president noted with alarm the huge acceleration
in financial volatility in recent years, observing that foreign exchange
transactions have grown at a huge clip, now standing at $4 trillion per
day, while 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.

Sarkozy revealed that the first meeting of this group would be held
in China at the end of March. He expressed his gratitude to China’s
President Hu Jintao for hosting the meeting, which he said “wasn’t
easy,” since that country’s currency policy has been frequently
criticized by Europe and the U.S.

But at another juncture he seemed to take aim at China — and other
emerging economies — saying that another issue on the G20 agenda was to
discuss how to eliminate 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 also reiterated his call for the construction of criteria
— a sort of index — for measuring payment imbalances. It would be
overseen by the IMF and followed up with an agreement among G20
countries to converge around those criteria.

He said France favored enlarging the role of the IMF in monitoring
financial stability, including the idea of constructing a set of
parameters to limit payments imbalances. “If the IMF doesn’t do it, who
will? Nobody,” he said.

Sarkozy also lamented the sharp rise last year of a number of
commodity prices, including for some basic food staples such as wheat.
He argued that the hand of speculators was behind it, noting that
volatility had risen with the increasing use of commodities as
essentially financial instruments. He said it would be top priority of
the G20 under French direction to address the issue of volatility in
commodities prices.

The French president also threw his weight inequivocably behind the
idea of a global tax on financial transactions.

“France considers this tax is moral given the financial crisis we
have just experienced; that this tax is effective for dissuading
speculation; and that this tax is effective for finding new resources
for development,” the French president said.

In an interview on CNBC earlier Monday, Sarkozy’s Finance Minister
Christine Lagarde said such a tax could be used to help address a hole
of E100 billion needed to finance development and combat climate change.

The transaction tax proposal has “big enemies, big adversaries on
its path,” Sarkozy acknowledged, “and we will try to convince them” —
in part by galvanizing the support of other countries, including
Germany, that are behind the idea.

Because such a tax cannot meet all financial needs in Europe, “we
are prepared to discuss other solutions,” Sarkozy said.

Sarkozy also noted that there is now a global consensus behind
limiting bonuses in the financial industry, and he held up as an example
the recent decision by Morgan Stanley to delay awarding bonuses to its
personnel.

Casting aside questions about the continued relevance of the G20,
whose member nations have had a difficult time agreeing on major
initiatives, Sarkozy argued that the group was more important than ever
in an increasingly multinational world, where every nation has the right
“to make its voice heard.” He rejected the idea that in the end, the
major global decisions would be taken by the U.S. and China in a kind of
de facto G-2.

However, “for the G20 to remain legitimate, it must remain
effective,” Sarkozy said. He said it would be a “catastrophe” if the G20
under France took the easy road and dodged the “big questions.” But at
the end of the day, “we must reach solutions, even if it takes a long
time,” he said.

“The ambition of France is simple: we live in a new world; we need
new ideas,” he said.

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

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