–Adds Comments On The IMF, Financial Transaction Tax, Bonuses
–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 U.S. 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.

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.

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.”

“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; bwolfson@marketnews.com

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