Weaning the global monetary system off its reliance on the dollar has eluded policy makers for decades, but the wind may now be blowing in France's favour as it seeks to build a consensus for change.
Finding ways to diversify countries' international reserves away from the US currency is a key part of French President Nicolas Sarkozy's plan to sketch out a blueprint for a more stable monetary system during France's year-long presidency of the Group of 20 nations, which began this month.
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In the wake of the 2008-09 global financial crisis, France, which has long argued dollar volatility damages European economies, is finding common cause with emerging powers such as China and Brazil.
"The time may have finally come because it's not just France thinking about this: the dollar is becoming destabilising for a lot of countries," said DeAnne Julius, chairman of London's Chatham House institute of international affairs. "France has a good chance of making significant progress."
French officials say their agenda hinges on convincing the Chinese, whom Sarkozy has assiduously courted, to agree to a greater role for the yuan as a reserve currency. This would initially be done by having the yuan enter the Special Drawing Right, an International Monetary Fund accounting tool currently based on the values of the dollar, euro, yen and sterling.
China's central bank chief proposed last year that the SDR be turned into an international currency based on John Maynard Keynes' 1944 idea of a "Bancor". The idea won backing from Brazil at a G20 summit meeting last month.
No one expects a "big bang" move to a supranational currency; the shift away from the dollar would take many years, possibly decades. But France wants to revive the debate on the role of the SDR as part of a gradual move toward a multipolar currency system.
"There are some concrete things we can do," said a senior French official. "For example, what timeframe do we set for the renminbi to enter the SDR? Next year? In 10-years? This is something we can decide. The Chinese are ready to discuss this."
Anxiety in Beijing
The US Federal Reserve's decision this month to conduct more quantitative easing, effectively printing money to buy government debt, was strongly criticised as destabilising by many governments and may well have strengthened France's case.
In particular, the US decision fanned anxiety in Beijing which has some two-thirds of its USD 2.65 trillion foreign reserves in the US currency that the dollar is no longer a stable store of value.
Wading into the debate on how to improve the global monetary order, Chinese President Hu Jintao called at a Seoul G20 summit this month for "an international reserve currency system with stable value, rule-based issuance and manageable supply".
Amid fears that tensions between Washington and Beijing might provoke a "currency war", in which governments would battle each other to influence exchange rates to their advantage, the Seoul summit asked France's presidency to develop "indicative guidelines" to measure if countries had excessive current account surpluses or deficits.
"This is more useful politically than economically, because it helps take the pressure off the currency issue," Julius said.
China, with its attention gripped by domestic inflation, has allowed its currency to appreciate modestly in the last few months while angrily rejecting pressure from Washington to quicken the pace.
Beijing has already taken steps to internationalise the yuan, allowing trade to be settled in yuan and permitting this money to be reinvested in its domestic bond market, as well as establishing renmimbi swap lines with several central banks.
It says it aims to build Shanghai into an international financial centre by 2020, implying the yuan will be fully convertible by then. But including the yuan in the SDR could encourage Beijing to accelerate its capital account liberalisation, as Washington demands.
"The smart thing for the IMF to do would be to put the yuan in the SDR basket today," said Jim O'Neill, chairman of Goldman Sachs Asset Management. "Then the SDR would also have some obvious appeal to the private sector: this could quite rapidly open the door to less dependence on the dollar."
The SDR currently accounts for just 4 percent of global reserves, or USD 308 billion. The four currencies which make up the SDR account for only 46% of world trade, according to ING bank. As the world's largest exporter, China wants to be admitted.
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