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.
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.
But he said the solution was not complicated.
It does not require a new treaty, or a new institution. It can be achieved by national actions to follow through on the work we have already begun in the G20 to promote more balanced growth and address excessive imbalances, he said.
AT OUR PACE
Wang, the Chinese vice-premier, said Beijing was indeed taking steps to wean its economy off exports by boosting domestic demand.
He was speaking shortly after the People's Bank of China, the central bank, let the yuan rise to its strongest level yet against the dollar since it allowed the Chinese currency to resume climbing higher last June.
The yuan has gained more than 4 percent against the U.S. currency in the interim, somewhat dampening U.S. complaints about the way Beijing manages the currency.
But senior Chinese academics echoed Wang in stressing that Beijing would change at a pace of its own choosing.
Reform of the global monetary system must be gradual and China's priority is to avoid an abrupt fall in the dollar, said Li Daokui, an academic adviser to the Chinese central bank who is attending the seminar.
Sarkozy, who later left for Japan, floated the idea of letting the International Monetary Fund (IMF) float bonds on the global capital markets.
In his audience was the head of the IMF, Dominique Strauss-Kahn, who is widely expected to run for president against Sarkozy next year.
Sarkozy also suggested it was time to lay out a timetable for emerging currencies like the yuan to become part of the IMF's Special Drawing Right (SDR).
The SDR, a quasi-currency used as the Fund's unit of account, is currently composed of the dollar, euro, yen and sterling.
Economists say that adding the yuan to the basket would make it more representative and credible and could set the stage for the SDR to play a greater role as an international reserve asset in future, thus giving countries an alternative to accumulating huge reserves of dollars.
Although China regularly voices criticism of U.S. monetary policies and the dominance of the dollar, it has acted cautiously as France has ratcheted up the calls for global monetary reform.
In talks with Sarkozy on Wednesday, Chinese President Hu Jintao said only that his government was willing to strengthen communication and coordination with France ahead of the main G20 summit later in November.
Beijing's caution stems, in large part, from being the country with the most to lose should the dollar suddenly lose its status as the anchor of the global economy.
China has the world's biggest pile of foreign reserves, $2.85 trillion and rising, and about two-thirds are estimated to be held in dollar-denominated assets.
(Additional reporting by Annika Breidthardt, Xie Heng and Langi Chiang; Writing by Alan Wheatley; Editing by Ken Wills)