Nanjing - French President Nicolas Sarkozy and US Treasury Secretary Timothy Geithner on Thursday called for more flexible exchange rate regimes at a G20 meeting on global monetary reform in China.
The pair, speaking at the start of the talks in the eastern Chinese city of Nanjing, also urged a widening of the basket of currencies underlying the IMF's international reserve asset, while keeping the dollar and euro stable.
The seminar - bringing together ministers and central bankers from the world's leading economies, as well as a select group of academics - has been organised by France, which holds the G20's rotating presidency.
The meeting - which comes as the global recovery faces major hurdles such as Japan's quake-tsunami disaster and the ongoing eurozone debt woes - aims to hone in on key ways to reform the monetary system.
"It's clear we must move towards a more flexible exchange rate system that would allow the world to absorb shocks. But this system cannot evolve without rules, coordination and oversight, or instability will prevail," Sarkozy said.
The West wants to see the yuan become part of the International Monetary Fund's Special Drawing Rights (SDR) basket as part of its efforts to prod Beijing into opening up its tightly managed currency regime.
Geithner added that the gap between flexible and managed exchange rate policies -- and the problems such a divide creates - was "the most important problem to solve in the international monetary system today".
"This asymmetry in exchange rate policies creates a lot of tension," Geithner said, noting that it "magnifies upward pressure" in emerging markets with flexible exchange rates and "intensifies inflation risk in those emerging economies with undervalued exchange rates" - a clear reference to China.
Host China had ruled out any discussion of its controversial exchange rate regime, despite ongoing criticism that its yuan is massively undervalued, giving its exporters an unfair trade advantage, but the issue was on the table.
Chinese Vice Premier Wang Qishan vowed China would "work with the rest of the international community" to ensure the "economic order will move towards a just and equitable and win-win direction".
Sarkozy called on the G20 to agree on a timetable for widening a basket of currencies determining the value of the SDR, which now only includes the dollar, euro, yen and pound.
"Isn't it time to agree on a calendar for the expansion of the SDR basket to new currencies from emerging nations such as the yuan?" Sarkozy said.
"We must support the inevitable internationalisation of the world's major currencies," he added.
"This of course does not mean calling into question the crucial roles of the dollar and euro, which must remain stable."
Geithner said the United States supports "reforms to change the composition of the SDR", adding that those countries whose currencies eventually become part of the SDR basket "should have flexible exchange rate systems".
Nobel prize-winning economist Robert Mundell agreed.
"If they expanded the funds for this, it adds more liquidity and lets the IMF help Europe more and other countries that are in financial difficulties," Mundell told reporters ahead of the talks.
The day was to feature closed-door group sessions on global capital flows - which emerging economies including China say are fuelling inflation and driving up the value of their currencies - and a speech from IMF chief Dominique Strauss-Kahn.
Aides close to Sarkozy have said that no concrete decisions are expected from the seminar.
At a meeting in Paris in February, the G20 agreed to a set of indicators to measure economic imbalances between surplus exporters such as China and nations with structural deficits such as the United States.
The non-binding indicators gauge internal imbalances, focusing on budget deficits, public debt and private savings.
External indicators, meanwhile, look at the trade balance and investment flows, "taking due consideration of exchange rate, fiscal, monetary and other policies," the G20 has said.
But China, which has the world's largest foreign reserves valued at more than $2.8 trillion, has baulked at many of the indicators amid fears they could result in more pressure over trade and its currency.
In Nanjing, though, such imbalances "will not be at the centre of discussions," one Western diplomat said earlier.
French economy minister Christine Lagarde and her Chinese counterpart Xie Xuren will close the conference.