Sarkozy's US Visit Exposes Tough G20 Dollar Debate
French President Nicolas Sarkozy's visit to Washington Monday highlighted the difficulty G20 members face in questioning the dollar's supremacy among reserve currencies.
Sarkozy and his finance minister, Christine Lagarde, made a brief visit to the U.S. capital to sound out the White House and the Treasury on France's reform agenda as it heads the Group of 20 this year.
Among the proposals is a push away from the dollar to a more diversified collection of reserve currencies.
Sarkozy emerged from the talks with declarations of the good intent from his transatlantic allies. But the U.S. media had a different reading: France and the United States do not agree about much at this stage.
"It has been unclear exactly what alternative approach Mr. Sarkozy might be proposing, or how the United States, where the centrality of the dollar has long gone unquestioned, might be persuaded to support it," The New York Times said Tuesday.
The Wall Street Journal interpreted Washington's views on the French monetary goals, rendering them off the mark.
U.S. President Barack Obama's administration, it explained, "hopes Mr. Sarkozy's championing of an overhaul of the international monetary system doesn't distract attention from the more immediate problems in Europe."
In the United States, there is a widespread belief that Greece's debt crisis and the foot-dragging of Europeans in the face of eurozone's fiscal woes helped slow the U.S. economic recovery in 2010.
A French-American researcher at Princeton University in New Jersey, Sophie Meunier, found some common ground between Sarkozy and Obama on reform of the international monetary system.
"It could very well end up helping the dollar. The agenda, in fact, gets to the thorny issue of the undervaluation of the yuan in a comprehensive and organized manner, rather than the bilateral and confrontational approach tried last year -- with no success -- by the Obama administration," she wrote.
Washington remains fixated on the yuan currency of China, now the world's second-largest economy and the global leader in goods exports.
The administration accuses Beijing of maintaining an undervalued yuan to gain a trade advantage by making its exports cheaper against U.S.-made goods.
The G20 and the International Monetary Fund have recognized that a recent rise in currency tensions stems from trade imbalances, but the delicate issue floundered under South Korea's chairmanship of the G20 in late 2010.
A U.S.-backed attempt to ensure members would not exceed certain surpluses or deficits with the rest of the world -- which presumably would force China to let its currency appreciate -- went nowhere.
The idea did not garner the hoped-for support, including from France and other key allies in Europe.
When France floated an alternative idea -- the diversification of reserve currencies -- it was met by skepticism in the home of the greenback.
Why upend the dollar standard, which has proven itself, when all that is needed is to allow currencies to float more freely?
That was the question posed by Martin Feldstein, an economics professor at Harvard University and a former economic adviser to Obama and former president Ronald Reagan.
According to Feldstein, a depreciation of the dollar is all that is needed to erase the yawning U.S. trade deficit with China.
"Natural market forces should resolve such imbalances without the need for specific government policies," he said, adding that "government actions in both countries have actually contributed to their persistence and prevented market forces from correcting the problem."
Still, not everyone is as confident things will work themselves out.
Britain's finance minister George Osborne has said he believes the future of the G20 depends on the success of the French presidency in rallying collective action.
"I think you have an enormous responsibility in the next year to prove that the G20 is relevant as an important international institution going forward, because if the French can't make a success of the G20, then I don't see who can," Osborne said.