AFP

French President Nicolas Sarkozy.

Nicholas Sarkozy has called for a new Bretton Woods system for managing the global economy but two months into France's G20 presidency, officials are playing down hopes of a major breakthrough on monetary reform.

The French president made discussion of how to wean the world off its reliance on the dollar a top priority of his year-long stewardship of the Group of 20, which began in November, alongside an overhaul of global economic governance and tackling volatility of commodities prices.

Faced by reticence and confusion among G20 partners, French officials are trying to manage the high expectations set by Sarkozy's rhetoric, acknowledging progress may be slow going as the G20 moves out of crisis mode to address more complex issues.

“Many of the issues tackled under our G20 presidency, they are not going to be solved in one year,” said Benoit Coeure, deputy head of France's Treasury. “Reform of the international monetary system, this is not going to be over in November 2011.”

Sarkozy appeared to moderate his tone after meeting U.S. President Barack Obama last week to canvass opinion on his G20 agenda before a key policy speech on Jan. 24. In the face of Washington's intransigence, Sarkozy said the dollar's role was set by the market and there was no alternative at present.

Officials say France already has its hands full with more pressing issues like clinching agreeing on “indicative guidelines” for global economic imbalances, as mandated by November's G20 summit in Seoul. Exporters like Germany and China and commodities producers like Saudi Arabia oppose strict rules.

A G20 finance ministers meeting in Paris next month will be more procedural and is unlikely to produce any big advances, according to a senior government source: “We'll not start to get decisions until the IMF spring meeting in Washington in April.”

On global governance, where France favours creating an institutional framework for the G20 such as a permanent secretariat to make it the main international forum for decision-making, there is resistance from some G20 partners.

“I don't see any reason to make the G20 an institution at the level of other international organisations like the IMF,” Japan's vice minister for international affairs, Rintaro Tamaki, told Reuters, adding he also backed a continued role for the G7.

“I hope the G20 can deliver something by November but to do this we have to narrow down the scope ... People do not understand what we are going to discuss,” he said. <Thereisstillaproblemoftrust,>France's presidency has abandoned a 4 percent threshold for current account imbalances proposed by U.S. Treasury Secretary Timothy Geithner last year, and is focusing on less specific indicators to encourage members like China to come on board.

“If these (signals) indicate red, then the mandate will be for an organisation like the IMF to look into it and say either let's not worry or let's worry some,” Blanchard said. “The purpose is to allow dialogue between G20 ministers.”

A senior official at the presidential palace said discussion of reserve currencies - such as wider use of the IMF's Special Drawing Right and a greater role for China's yuan - was further down France's agenda “if we have the time”.

French officials have suggested setting a timetable for the yuan's entry into the SDR's basket of currencies could be one achievement of their presidency, but Washington is reluctant to concede this without more yuan exchange rate flexibility.

“China is very anxious to have its currency included in the SDR and they could even press ahead in easing capital controls if that happens,” said Harvard professor Jeffrey Frankel, one of several prominent economists consulted by Sarkozy's government.

Having assiduously tried to improve ties with Beijing, partly by avoiding criticism of the yuan's valuation, Sarkozy risks seeing his efforts undermined by reports France is investigating Chinese links to industrial espionage at Renault.

“If it's true, it would certainly poison Sino-French relations,” said Francois Godement of the European Council on Foreign Relations.

FOOD PRICES RISING UP THE AGENDA

French officials recognise their G20 agenda is at the mercy of events, such as any deepening of the euro zone crisis. Rises in global food prices have also added urgency to its plans to more strictly regulate commodities markets.

Expanding the usual G20 format, Paris is planning an agriculture ministers meeting by June to discuss tougher rules on commodities trading to prevent speculation.

Paris wants more accurate data on commodities inventories and production, as well as the creation of regional food stockpiles. It would also like to see global implementation of U.S. rules on derivatives trading which prevent players from acquiring a dominant market position to squeeze prices.

Such measures have broad support from several countries in Latin America and Asia, but officials say here as well progress will face many hurdles. “Commodity reform ... is even more complex than monetary reform because you have to get lots of different people from very different areas in the same room: NGOs, agriculture ministers, derivatives regulators,” said one government source.

“It is going to depend on the price of wheat.” - Reuters