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President Jacques Chirac of France, visiting Washington, openly split with the American approach to stabilizing the world economy a day before meeting President Clinton.
In a speech today to the World Bank and the International Monetary Fund, Mr. Chirac urged that the United States, Japan and Europe manage the exchange rates of their currencies, keeping them within specific zones agreed on by the major nations, to restore stability to the world economy. That is an idea that Japan and Germany have echoed, but on Wednesday, Treasury Secretary Robert E. Rubin dismissed the suggestion as unworkable and ill thought out.
Mr. Chirac’s suggestion that the world’s three main currencies — the dollar, yen and euro — remain within “target zones” is part of a broader agenda he brings here for a more active approach to taking some of the risk out of the world economy. He has also called for far greater regulation of hedge funds — huge pools of money put together by private investors — and for an early warning system to detect crises.
“We must increase our capacity for crisis prevention,” Mr. Chirac said today. “We must adopt a veritable traffic code or highway code for capital flows, a code which applies to all, including hedge funds and offshore establishments.”
Mr. Rubin, a 26-year veteran of Wall Street, has been cautious about each of the suggestions, and openly dismissive of a few. Early warning systems, he pointed out recently, sound like a good idea, but rarely work in practice. The I.M.F., he has noted, has a poor record of predicting when and where a crisis will erupt, and private credit-rating organizations failed to flag the troubles that set off the crisis in Asia, Latin America and Russia that has rocked much of the world over the last 20 months.
The issues are bound to come up on Friday, when Mr. Chirac meets with President Clinton, a session that the Treasury said today Mr. Rubin would also attend.
The arguments over how to construct what Mr. Chirac today called a “new financial architecture” have been building for months. The differences are likely to become evident on Saturday, at a meeting in Bonn of the finance ministers and central bankers of the seven largest industrial nations. The annual session is intended to set the agenda for the Group of Seven leaders meeting later this year.
“We don’t know how hard Chirac will press all of this face to face with the President,” one of Mr. Clinton’s aides said today. “And Clinton himself is conflicted on this, because he likes the idea of political leaders pressing to do more than just technical fixes.”
Mr. Rubin’s strong criticism of the proposal to regulate exchange rates came at a news conference Wednesday. He noted that if the United States economy went into a downturn, and the value of its currency also fell, Europe and Japan might prescribe a rise in American interest rates in an attempt to bring the value of the dollar back up. But that move could choke off growth, worsening the economic downturn.
“We think that the way you achieve stability is to use fundamental economic policy,” Mr. Rubin said.
At the heart of the issue are questions of sovereignty — the United States is loath to turn over economic decision-making power to an international organization of any kind. The Clinton Administration is also doubtful about the wisdom of creating a new bureaucracy to police the world economy.