Last year, French President Nicolas Sarkozy was rather ambitious in what his goals would be in confronting the global financial crisis. From Bloomberg last November, at the G20 in Seoul:
The group’s final statement after a summit in Seoul today, which cited the dangers of competitive devaluations and volatile capital flows, underscored Sarkozy’s main goal as president of the group of “updating” the global monetary order, he said in a closing press conference.
“It’s already a success that the G-20 agrees that the international monetary system is a problem,” Sarkozy said. “That wasn’t always the case.”
While Sarkozy avoided castigating any country for unstable foreign-exchange markets, in the past he blamed the dollar’s dominant role as a reserve currency for helping fuel the financial crisis. French officials have been vague about what they’d suggest to replace it, partly because there aren’t any ready alternatives.SOURCE
No one can say that Sarkozy lacked ambition. I guess it is due to the uniquely French habit of publicly admonishing the US and its (mis)handling of the US Dollar. Charles de Gaulle was well known for his criticism of US monetary and fiscal policy in the 1960s. Many would say it was France's alarm over US Dollar management that accelerated the end of the Bretton Woods System of US Dollar/Gold convertibility. de Gaulle, after all, not only wanted his dollars exchanged for gold, he actually sent battleships to New York City to physically pick the stuff up. Germany was not so distrustful, and to this day, much German gold sits in the vaults of the NY Federal Reserve.
But enough of the history. It looks like Sarkozy has scaled back his ambitious plans for heading the G20 this year. From iMarketNews:
France's high hopes for an overhaul of the global monetary system under its presidency of the G20 slammed into the hard realities of sovereign national interests at a brain-storming session this week.
A debate among eminent academics and finance ministers -- all sympathetic to the aim of restructuring the chaotic and risk-prone world of volatile exchange rates and uncontrolled capital flows -- over alternatives and how to get there made clear that the odds for even minor corrections are extremely small.
French Finance Minister Christine Lagarde, who knows as well as anybody how intractable international negotiations can be, made clear from the outset that France's ambitions for reform are in fact fairly modest.
"I won't supply any answers," Lagarde told a two-day colloquium here bravely entitled "New World, New Capitalism." Rather the aim of France as it takes over the presidency of the G20 this year is to pose the questions, solicit responses and explore solutions, she said.
This is big a step down from President Nicolas Sarkozy's dream of dethroning the dollar and ushering in a multi-polar monetary order.
However, those days are over. If historically, a monetary system is dictated to the rest of the world by the pre-eminent economic and military power, what happens when that superpower's status is diminishing as others attain military and economic strength? Has there ever been a period in history when global cooperation amongst (somewhat) equals resulted in an agreed upon monetary system? I can not find any examples.
Alan Beattie, in yesterday's Financial Times, wrote: Tensions Rise in Currency Wars. The Financial Times also had another article titled: Trade War Looming, Warns Brazil. These should be no surprise. When a Superpower is facing tremendous financial issues of its own in an increasingly multipolar world, it will have a difficult time dictating what everyone else should do. And everyone else does what they have to do to protect themselves - thinking about the global consequences is a secondary concern, if it is a concern at all.
It is a central tenet to the theory of this blog that international conflict, not cooperation will likely be the outcome of the global financial crisis. So far, I have yet to see any concrete steps that lead in the direction of global cooperation.