France Says Changing World Requires More Currency Coordination

Bloomberg (Link) - Mark Deen and Francine Lacqua (July 5, 2009)

Finance Minister Christine Lagarde and Bank of France Governor Christian Noyer called for increased global coordination of currencies, joining a debate fanned by emerging markets from China to Russia.

�We must explore better coordination of exchange rate policy,� Lagarde told reporters today at a conference in Aix en Provence, France. Noyer said at the same event that �we really need to make sure there is a greater stability between the big currencies in the period to come.�

The French call came three days before leaders of the Group of Eight countries meet in Italy with counterparts from China and India. Ahead of the talks, China, India and Russia have pressed for a rethinking of how the world�s U.S. dollar- dominated currency reserves are composed.

Lagarde�s comments may signal that France accepts the emerging economies have the right to a bigger say in how the world economy is run. Questions need to be addressed about �the balance of currencies and the role of currencies in a world that has changed because of the crisis and the growing role of emerging countries,� she said.

Russian President Dmitry Medvedev has repeatedly called for creation of a mix of regional reserve currencies as part of the drive to address the crisis, while questioning the dollar�s future as a global reserve currency. The People�s Bank of China, that country�s central bank, said June 26 that the International Monetary Fund should manage more of its members� reserves.

Dependence on Dollar

Russian and China received support on July 3 from India, when an adviser to Prime Minister Manmohan Singh said the country should diversify its $264.6 billion in foreign-exchange reserves and hold fewer dollars.

�The major part of Indian reserves are in dollars -- that is something that�s a problem for us,� Suresh Tendulkar said in an interview in Aix en Provence.

China said this past week that it will allow companies to use the yuan to settle cross-border trade and let them keep their entitlement to export tax rebates, seeking to reduce the reliance of importers and exporters on the U.S. dollar.

The People�s Bank of China has agreed to provide a total of 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps to expand the yuan�s usage. China and Brazil in May began studying a proposal to move away from the dollar for trade settlement and use yuan and reais instead.

The dollar rose last week, advancing 0.5 percent against the euro to $1.3894, as speculation the global economic recovery is faltering increased demand for the safety of the U.S. currency.

�Appropriate Platform�

�Some emerging countries have decided to deal more in their respective currencies and trust each other,� Lagarde said in an interview. �That doesn�t stop other countries from seeing the dollar, and to a lesser extent the euro, as currencies of trading if not reserve currencies.�

Lagarde said that any discussion of currencies needs to encompass the dollar, the euro, the yuan and the yen and that the meetings of the Group of 20 are the appropriate place to have it. �The appropriate platform is the one in which all the major currencies are represented,� she said.

For all the concerns about the dollar�s role, emerging markets such as China and India remain dependent on the currency of the U.S., the world�s largest economy and a $2.5 trillion export market. The IMF said June 30 that the share of dollars in global foreign- exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.