French President Nicolas Sarkozy assured President Barack Obama on Monday he recognized the U.S. dollar’s role as the world’s “No. 1 currency,” as the two leaders pledged to coordinate ideas for reforming the international economic system.
Sarkozy, pushing France’s goals as the new head of the Group of 20 powers, came to Washington with an agenda that included broaching the sensitive subject of blunting the dollar’s longtime status as the top global reserve currency.
But he was quick to try to defuse any tensions with his hosts over the growing international challenge to dollar dominance, which has been backed by emerging giants like China but has gained little traction in Washington.
Treading cautiously, Sarkozy spoke to Obama about his proposals for reforming the international monetary system but did not press for any moves that would reduce the dollar’s value, a U.S. official said after the leaders’ joint statements.
“I’ve always been a great friend, a tremendous friend of the United States and I know how important a role the U.S. plays in the world, how important the U.S. dollar is as the world’s No. 1 currency,” Sarkozy told reporters as he sat beside Obama after White House talks.
Sarkozy did not publicly repeat his call for starting to wean the world off decades of dollar-dependence, but talked more generally of the need for forge ahead with “new ideas for a new century” to promote economic stability.
The U.S. official, who spoke on condition of anonymity, said both leaders agreed the dollar’s role in the world should be determined by international markets and investors.
Obama, who made no mention of the dollar in his remarks to reporters, agreed with Sarkozy on the need to put the world economy on a more even keel. “There are still too many imbalances in the world economy that are inhibiting the prospects for growth,” he said.
He spoke little more than a week before hosting a state visit by Chinese President Hu Jintao, when the issues of currencies and global imbalances are sure to be a delicate subject.
Obama and Sarkozy discussed the need for the world to move toward more market-driven exchange rates, the U.S. official said. Washington is pressing Beijing to let the yuan rise, saying an artificially low value hurts U.S. business and jobs.
Obama and Sarkozy also discussed the European debt crisis. The European Central Bank threw Portugal a temporary lifeline on Monday by buying up its bonds while market and peer pressure mounted for Lisbon to seek an international bailout soon.
A senior euro zone source told Reuters on Sunday that Germany, France and other euro zone countries were pushing Portugal to seek an EU-IMF assistance program, following Greece and Ireland, in a bid to prevent contagion spreading to much larger Spain. [nLDE7080FG]
“There was not a specific discussion of Portugal as much as a broader discussion around the European response and the challenges that lie ahead,” the U.S. official said of Obama and Sarkozy’s talks.
Sarkozy wants to use his run at the G20 helm in 2011 to start, if not finish, reforms of the monetary system at a time when many countries are tempted to let their currency drop to promote exports and growth after the worst downturn since World War Two, even if that can be at each other’s expense.
Paris is also pressing for international efforts to impose greater transparency in commodity markets trading and pricing, and for tougher regulation of trading in commodity derivatives along the lines pursued for other investment derivatives in the wake of the financial markets crisis that preceded the economic downturn of 2008-2009.
Sarkozy said U.S. and French officials would be working closely together on issues like commodity prices. Soaring food prices and riots in Algeria and elsewhere have offered Sarkozy ammunition to press for more coordination among G20 governments to combat wild swings in vital commodity prices.
The French president, who played a key role in coordinating a European response in the earlier stages of the financial crisis, has also made clear he wants to make headway on his view that the dollar’s global role needs to be scaled back.
Sarkozy is trying to rally the G20 to the idea of a more diversified monetary system after decades in which the U.S. dollar has served as the world’s reserve currency and a major unit of international trade settlement.
Obama also said he and Sarkozy, both strong advocates of sanctions to pressure Iran over its nuclear program, shared the hope for a diplomatic solution to the standoff.
“But we will be building on our shared resolve to assure that we’re not seeing nuclear weapons in Iran,” he said.