By NATHALIE BOSCHAT And DAVID PEARSON
PARIS—French President Nicolas Sarkozy called on the world's 20 largest economies to work together to reform global monetary order.
"We must define a new framework for discussing currency movements," Mr. Sarkozy said, adding that it is "nonsense" to talk about exchange rates without including China, which has accumulated huge foreign exchange reserves.
He said stabilizing erratic foreign exchange and commodities markets will feature high on France's agenda when it heads the Group of 20 from November. He added there is a need to reduce the U.S. dollar's dominance as the reserve currency of choice and called for a greater role for alternative currencies.
Mr. Sarkozy was speaking in front of the nation's ambassadors to outline France's priorities for the G-20 and the G-8 meetings. France starts presiding over the G-20 in November and will be head of both the G-20 and G-8 summits as of next year.
Better coordination of global economic policies aimed at unwinding world imbalances is key to reducing foreign exchange volatility, Mr. Sarkozy said. Another way to achieve better currency stability will be for the G-20 to try to prevent the accumulation of excessive foreign-exchange reserves among its members, particularly in emerging countries, he added.
South Korea, which currently is chair of the G-20, is pushing for the institution of financial safety nets aimed at preventing massive capital outflows such as the those witnessed in emerging countries during the recent financial crisis and the Asian crisis of the late 1990s.
This involves strengthening some of the International Monetary Fund's existing insurance mechanisms in order to deter emerging countries from accumulating excessive foreign-exchange reserves with a view to protecting themselves against potential financial crises, and should in turn contribute to currency stability.
Mr. Sarkozy said he wants the G-20 to deepen South Korea's work when France heads the group and added the G-20 should also examine ways to allow countries that are highly reliant on outside capital flows to "temporarily regulate their capital markets" in times of trouble.
Foreign exchange volatility is a "real threat" to world economic growth, Mr. Sarkozy stressed, echoing a long-held French view that there is a need to introduce guard rails to prevent rates from getting out of kilter.
Mr. Sarkozy said he isn't calling for a reversal to a global monetary system based on fixed rates, which existed before the Bretton Woods agreement, the conference held in the U.S. town of the same name that moved the world economy off fixed exchange rates after the second World War.
But he suggested that a conference of experts could be held, possibly in China, to discuss the future of the monetary system without "taboos."
"Since the 1970s, we've been living in a nonexistent international monetary system," he said. Monitoring global exchange rates has until now been the exclusive remit of the group of the world's seven most industrialized countries, which doesn't include China.
The global monetary system should also be more multipolar and not rely solely on the U.S. dollar as the world's main reserve currency, Mr. Sarkozy added. Noting increased interest in the Special Drawing Right, a monetary unit used by countries in their transactions with the International Monetary Fund, Mr. Sarkozy said the international monetary system would be reinforced if countries could use an international reserve asset that isn't issued by only one nation, as is the case with the U.S. dollar.
Coppied by http://online.wsj.com/article/SB10001424052748703632304575451820235798674.html?mod=WSJEUROPE_hpp_LEFTTopStories
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