The Group of 20 nations must make headway on a coordinated reform of the international currency system and eschew the unilateral actions that serve only to harm global commerce, World Trade Organization chief Pascal Lamy said.

If the G20 summit in Cannes next month failed to take a step toward closer cooperation on macroeconomic policy, trade was likely to become a scapegoat for systemic failings, he said in Berlin, according to the text of a speech published on Thursday by the WTO.

Monetary policies do not operate in a vacuum - they cannot be made to function in the national interest unless they function in the global interest. And the only way to achieve this is through global cooperation, Lamy said.

This is why we need the G20 to make headway on the issue of reform of the international monetary system... Unilateral attempts to change or to retain the status quo will not work. Even worse, unilateral moves could trigger a spiral of tit-for-tat reactions in which every country would lose.

Brazil has raised eyebrows among trade diplomats in Geneva by suggesting that it could retaliate against imports priced in weak currencies in the same way that it would hit back at goods being unfairly dumped on its market.

Brazil has also asked the other 152 members of the WTO to support a study of the interaction between trade and currencies, widely seen as the first step in a gradual process of banning the use of currencies as a weapon in trade.

In the past decade, the biggest currency dispute has been between the United States and China, which has muted U.S. criticisms by slowly allowing its currency to strengthen.

What we need is an international monetary system which facilitates international trade, cross-border investment and a better allocation of capital across nations, Lamy said.

Despite Brazil's call for the WTO's involvement, Lamy said the world trade body was not equipped to tackle macroeconomic issues, and if it tried to, the WTO system might crumble under the weight of excessive expectations.

WTO rules will not fix consumption or saving patterns at home, they will not solve competitiveness issues of domestic industries, and they will not be determining domestic interest rates. All these issues require a mix of cooperation in the macroeconomic field and proper domestic policies which lie outside the remit of the WTO.

Although the prolonged economic crisis has not sparked a noticeable rise in protectionism, Lamy said the WTO would soon supply the G20 with a report on the worrying rise of new trade restrictions in the past six months.

At this stage the outlook is pointing in the direction of less restraint in the adoption of new trade-restrictive measures and less determination to dismantle existing ones, he said.