France presses for G20 deal on currency reform

"We have to be able to find mechanisms for the coordination and convergence of our economic and monetary policies," Economy Minister Christine Lagarde told a conference in Lyon, eastern France ahead of a G20 summit starting on Thursday.

"I support concerted and coordinated action ... It is in this spirit that the G20 under French leadership will get under way."

The current system, she insisted, "is not functioning satisfactorily."

She said the upcoming summit in Seoul will "take note" of steps toward regulation taken at a summit in Washington in 2008 and that were "based on the principle that no product, no party and no market should escape regulation or supervision."

Her comments came in the face of persistent fears of a global "currency war," in which key trading nations intervene to weaken their currencies in a bid to boost their own exports at the expense of those of others.

The latent tension, according to one economy ministry source, adds urgency and substance to France's determination to reform global monetary policy practices.

"The currency debate in some ways facilitates things, as it makes the question a priority," he said.

French President Nicholas Sarkozy said in August that currency reform would be at the top of his agenda under France's G20 presidency.

He denounced what he termed "exchange rate instability" in the context of an "international monetary non-system" that threatens global economic health.

France at the monent is moving gingerly on possible reform measures, speaking of seminars to be arranged in 2011 drawing together financial experts.

But Sarkozy in August did outline three possible measures, including the creation of a "more effective and rapid" mechanism to prevent and deal with finance crises.

He also urged an improvement in the coordination of economic and monetary policy among the world's principal regions.

And he called into question a system "dominated by a single currency," the dollar. He suggested as an alternative "an international reserve asset that is not issued by a single country," citing the special drawing rights created by the International Monetary Fund in 1969.

On Monday the president of the World Bank, Robert Zoellick called on bickering G20 nations to return gold to the global monetary system as an anchor to guide currency movements.

He argued that an updated gold standard could help retool the world economy at a time of serious tensions over currencies and US monetary policy.

The new system "is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi (Chinese yuan) that moves towards internationalisation and then an open capital account," he wrote in Monday's Financial Times.

But according to Philippe Dessertine of the French institute for high finance, "all these solutions are insufficient and hide the incapacity to come to an agreement on the one effective step, which is the creation of a real authority that can control and coordinate monetary actions of the major powers."