The international monetary system will feature prominently on the agenda of the G20 Finance Ministers and Central Bank Governors who will meet in Paris this weekend.
Despite President Sarkozy's call to switch to a multi-currency system, discussions are likely to fall short of any grand plan to reform the dollar-based system.
Instead, the focus will be on measures to make the current system more stable and robust, covering indicators for global imbalances, exchange rate flexibility and capital flows. As such, finance ministers may be missing an opportunity to set in motion a process to manage the inevitable transition to a multi-currency monetary system.
Can the dollar be challenged?
Certainly, there are no credible alternatives to the current international monetary system that are available to policy-makers immediately.
It will take years for another global currency - possibly the Chinese renmimbi - to emerge and challenge the dollar's role as the global reserve currency. But there are mounting and inevitable problems with a system that is in a form of stable disequilibrium.
Recognizing the need for reform
While the G20 has recognized that the current system is too vulnerable to fluctuations in exchange rates and capital flows, the proposed solutions, so far, seem too focused on containing the symptoms rather than dealing with the causes.
This sentiment is echoed, in different ways and different contexts, by Governor Zhou of the People's Bank of China and Brazil's Finance Minister Guido Mantega.
Methods of managing the shift to a multi-currency international monetary system are examined in the Chatham House report, Beyond the Dollar: Rethinking the International Monetary System. The report proposes a transitional phase in which the International Monetary Fund facilitates the expanded use of the Special Drawing Rights, both as an alternative store of value for countries' international reserves and as a unit of account in the international trade of commodities such as oil and gas.
A multi-currency regime, backstopped by a supranational reserve currency, is the system best able to support a healthy and flexible multipolar world economy. The dollar will continue to play a critical, albeit not hegemonic, role.
Can the G20 lead the adjustment to a multipolar world?
Addressing tensions in the global economy, before they become crises, should be part of the agenda promoted by the G20. In this sense President Sarkozy's effort to engage the G20 leaders in a dialogue on the international monetary system is welcome.
For the G20 as a whole, the debate should be focused not only on short-term measures to increase stability, but also on assessing how the system will eventually change and how the transition needs to be managed.