MARRAKECH, Oct 11 (Reuters) - Countries issuing the world's dominant currencies should abide by similar convertibility rules to avoid economic instability, France's central bank governor said on Wednesday in an apparent criticism of China.
A group of nations, like Iran and Russia, are challenging the dollar's de facto hegemony as the world's top reserve currency, and even if no big movement away from the greenback is seen as likely for now, the role of the dollar could slowly diminish.
Anticipating the costs of such a shift, Francois Villeroy de Galhau made the case for common rules, seemingly directing his remarks at China, the likely winner of any decline for dollar demand.
"It would be worse than anything else to shift from a dollar-dominated system to a confrontational non-system," Villeroy, a member of the European Central Bank's Governing Council, said in a speech.
"Fragmentation, especially if it is disorderly, would generate instability and inefficiency, especially from a crisis management perspective," he said.
China's not fully convertible currency has weakened more than 5% this year as the economy struggles through unexpected weakness.
Villeroy argued that all currencies part of the special drawing rights (SDR) basket – the dollar, the euro, the yuan, the pound and the yen – should abide by similar convertibility rules, a remark directed at China as its currency is the only non-fully convertible unit among the five.
"The currencies of this multipolar system – including, of course, the euro and probably starting with those of the SDR basket – should all commit to rules of convertibility and stability," Villeroy said.
"I refer in particular to a common 'inflation anchor', such as exists between the euro, the dollar, the yen and sterling of around 2%," Villeroy said.
China’s yuan is not a fully-convertible currency and its onshore exchange rate is a managed floating rate mechanism. (Reporting by Balazs Koranyi; Editing by Cynthia Osterman)
