Sarkozy in China for G20 talks but yuan not on agenda

China is accused of keeping its currency artificially undervalued

French President Nicolas Sarkozy will convene a meeting of some of the biggest names in world finance in Nanjing, China on Thursday.

The gathering will take place under the auspices of the G20 and will aim to smooth out global currency issues.
It is the first time China has hosted a G20 event.
But the country's leaders have played down its importance and say that one of the most controversial topics, its currency, will not be on the agenda.
Mr Sarkozy is the current G20 president and the only head of state to attend.
But other heavy hitters from the world of international finance will be there, including US Treasury Secretary Timothy Geithner, European Central Bank Governor Jean-Claude Trichet, UK Chancellor George Osborne and the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn.

“Start Quote

China will be sensitive to discussing the yuan, especially on its own ground”

End Quote Mitul Kotecha Credit Agricole

Yuan pressure

China has long been under pressure to allow its currency to strengthen, with many key trading partners claiming it is undervalued, giving the country an unfair advantage in international trade.

"China will be sensitive to discussing the yuan, especially on its own ground, but given what's happened in the world economy in the past few weeks, I think exchange rate complaints will be on the back burner," said Mitul Kotecha, global currency strategist at Credit Agricole.
The earthquake in Japan, the widening debt crisis in Europe and rising oil prices amid military action in Libya have all buffeted the global economy and are likely to be discussed during bilateral meetings on the sidelines of the event.
President Sarkozy will visit Japan after his China trip, becoming the first head of state to visit the country after the massive earthquake and tsunami earlier this month.
Ambitious agenda
The seminar's formal agenda is ambitious.
The first session is on the current state of the international monetary system and its shortcomings.
Volatile capital flows or "hot money" and global imbalances will also be addressed.

CURRENCY RESERVES

Foreign currency held by a government or a central bank
Used to pay foreign debt obligations or influence exchange rates
The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency

Another topic will be the IMF's Special Drawing Rights (SDRs) and whether they could be used as a reserve currency.

China has suggested in the past that the SDR, which was created in 1969 as a unit of account and is based on basket of currencies, could be used more widely.
France had seen China as an ally in its quest to reform the international monetary system, which overwhelmingly relies on the dollar as the primary reserve currency.
But while China would like to see the dollar's dominance reduced, it has gone cold on many of the more ambitious proposals to create a new world currency order.
It is instead forging ahead with its own plans to make the still tightly controlled yuan a more international currency, including allowing it to be used to settle cross-border trade transactions.

TheMiddleKingdomRising

Wednesday, March 30, 2011