11:53 PM
NANJING, China |
NANJING, China (Reuters) - China pushed back on Thursday against pressure from Paris and Washington for swift reform of a global monetary system that French President Nicolas Sarkozy said is so unstable that it could tip the world economy back into crisis.
The diverging views, on display at the start of a meeting of the Group of 20 leading economies, underscored the difficulty Sarkozy faces to meet his goal of drafting a blueprint for the overhaul of the global monetary order by the end of the year.
"Without rules, the international monetary and financial system is incapable of forestalling crises, financial bubbles and the widening of imbalances," Sarkozy told a gathering of finance ministers, central bankers and prominent academics.
"Without rules and supervision, the world runs the risk of being condemned to increasingly serious and severe crises."
France is the chairman this year of the G20, which brings together developed and emerging economies accounting for some 85 percent of global output.
Beijing, despite being asked to host the forum, has not shown great enthusiasm for the initiative or for Sarkozy's broad plans for reform. China fears the thinly veiled aim is to force it to let the yuan trade more freely and to dismantle its capital controls more quickly than it wants to.
"The reform process will be long-term and complex," Chinese Vice-Premier said in his opening remarks.
TALKING SHOP
The meeting in the eastern city of Nanjing is billed as a seminar to air ideas, not to take decisions.
In that spirit, Sarkozy asked whether it was not time to broaden the Group of Seven industrial countries, one of whose principal purposes is to police the global currency markets.
The group reasserted its role earlier this month when G7 central banks acted in concert to sell the yen. In doing so, it reversed a surge in the currency that threatened to deepen the damage to Japan's economy, already reeling from a devastating earthquake on March 11.
A senior German official, who declined to be identified, said Berlin was also in favor of currency questions being addressed by a broader group than the G7, perhaps incorporating the four BRIC countries -- Brazil, Russia, India, China -- along with Mexico.
But U.S. Treasury Secretary Timothy Geithner questioned whether an international effort was really needed to cure the ills in the global monetary system. Inconsistency in exchange rate policies was the biggest flaw, he said.
Without naming China, he noted that some emerging countries ran tightly managed currency regimes that fueled inflation risks in their own economies, magnified appreciation pressures in others and also generated calls for protectionism.
"This asymmetry in exchange rate policies creates a lot of tension," Geithner said. "This is the most important problem to solve in the international monetary system today."
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