France and the US have used the opening day of the G20 meeting in China to expound greater exchange rate flexibility and a strengthening of the International Monetary Fund as a way to improve global financial stability.
The G20 summit opening day has focused on currency stability
France and the United States on Thursday called for greater exchange rate flexibility and a widening of the currencies that underpin the International Monetary Fund's (IMF) reserve assets at a meeting of the Group of 20 (G20) in Nanjing, China.
Speaking on the opening day of the gathering, French President Nicolas Sarkozy said more flexibility in the exchange rate system "would allow the world to absorb shocks."
"But this system cannot evolve without rules, coordination and oversight, or instability will prevail," he told ministers and central bankers from the world's leading economies.
The Nanjing forum was organized by France, which is currently chairing the G20.
Chinese Vice Premier Wang Qishan reacted cautiously to Sarkozy's calls, however, urging restraint and patience.
"Global monetary reforms should be carried out in a pro-active and gradual way. The reform process will be a long-term and complex process," Wang said.
US Treasury Secretary Timothy Geithner, meanwhile, told the audience that tightly controlled exchange rate regimes were the main flaw in the international monetary system.
In a thinly-veiled swipe at China's strict control of its currency, the yuan, he said countries should remove policies that inhibited currency flexibility and permit free flows of capital.
France organized the G20 meeting in China
Internationalizing the yuan
Some leaders at the G20 summit also called for a widening of the currency basket underlying the IMF's international reserve asset to include the yuan. The basket determining the value of the International Monetary Fund's Special Drawing Rights (SDR) now includes the dollar, euro, yen and pound.
"We must support the inevitable internationalization of the world's major currencies. This of course does not mean calling into question the crucial roles of the dollar and euro, which must remain stable," Sarkozy said.
"But the internationalization of certain other currencies is already a reality - I'm thinking in particular of the yuan, and I would take this opportunity to welcome the ambition of the Chinese authorities in this regard."
In a meeting between Sarkozy and Chinese President Hu Jintao on Wednesday in Beijing, Chinese authorities said they supported a "heightening of the internationalization of the yuan," a French official said.
But the Chinese side also said there was "some way to go" before the yuan could be integrated into the SDR basket, according to the French source.
Author: Darren Mara (AFP, Reuters)
Editor: Rob Turner