French president Nicolas Sarkozy claimed that G20 leaders had made significant progress in advancing the reform of the international monetary system (IMS) at the Cannes summit, even as experts cast doubt on the substance of official pledges.
Sarkozy had placed international monetary system reform at the top of France’s six-point agenda of priorities for its chairmanship of the G20.
And despite the fact that the eurozone crisis had dominated discussions at the summit, the French leader insisted that his counterparts had recognized that tackling global trade and currency imbalances was crucial to long-term economic stability.
Many people were “cynical” about international monetary reform when France took over the G20 presidency, Sarkozy said in his closing press conference in Cannes on Friday, “but now there is agreement that it is the project for the coming years.”
He highlighted commitments by all G20 leaders to “enhance exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies.”
This commitment included a pledge by China. In a document released following the close of the summit, G20 leaders welcomed “China’s determination to increase exchange rate flexibility consistent with underlying market fundamentals”, and to “gradually move towards greater convertibility”.
US President Barack Obama welcomed the move, describing it as a “critical step in boosting growth”. “We welcome China's determination to increase the flexibility of the renminbi,” Obama said at a press conference on Friday. “This is something we’ve been calling for for some time.”
Currency tensions have been growing over the past 12 months, in particular between China and the United States, with the US Congress last month voting in favour of a bill that would seek to brand China a currency manipulator and impose punitive sanctions.
Other reform measures outlined in the communiqué included agreements on how to better manage capital flows, as well as steps towards enlarging the number of currencies included within the SDR basket, in line with the goal of further diversifying the global currency system.
The G20 also agreed to continue to further strengthen global financial safety nets, while welcoming new IMF lending instruments as part of the reform of the monetary system. The euro area's “comprehensive plan” is a further step in the reform of the international monetary system, the G20 added.
IMF managing director Christine Lagarde, who as French finance minister had spearheaded many of France’s efforts to achieve progress on IMS reform, also suggested that the G20 had taken “significant steps towards a more stable and resilient international monetary system”.
But others questioned the likely effectiveness of such pledges, and suggested that French promises of a sweeping reform of the monetary system were likely to end in disappointment, and had detracted attention from the more pressing need to revive growth.
“There has been an enormous amount of overpromising on long-term, almost theoretical issues at the Summit, and I don’t think that the G20 has paid enough attention to economic growth questions,” said Daniel Schwanen, a senior fellow at the Centre for International Governance Innovation.
Paola Subacchi, director of international economics at London-based Chatham House, suggested that for all the bold rhetoric on IMS by the French presidency, it was likely to prove ineffective.
“There was this grand plan of drawing up a new Bretton Woods, but in reality this is very difficult because there isn’t anything to replace the current monetary system,” she said. “So the only thing they can do is talk about imbalances and monitoring. There’s no big idea.”