YUAN, INFLATION LIKELY UNDER SPOTLIGHT AT G-20 CENTRAL BANK EVENT

Paris, February 18 (Dow Jones)- China's foreign-exchange policy is likely to be under the spotlight when the world's top central bankers meet in Paris Friday, on the sidelines of the Group of 20 industrial and developing nations gathering here, even though the yuan is not officially on the event's agenda.

Finance ministers and central bankers from the G-20 are meeting Friday and Saturday to discuss ways to engineer more balanced global economic growth, with reform of the international monetary system ranking high on the list of priorities.

U.S. Federal Reserve Chairman Ben Bernanke, European Central Bank President Jean-Claude Trichet, People's Bank of China Governor Zhou Xiaochuan, the head of the Bank of England Mervyn King, Bank of Japan Governor Masaaki Shirakawa and Bank of France head Christian Noyer will all be publicly discussing the Bank of France's financial stability review to be outlined Friday.

But China's central bank governor Zhou is likely to face questions from the audience about the country's monetary policy amid building pressure from G-20 countries for China to allow its currency to appreciate faster on foreign-exchange markets--something China has been resisting so far.

Going into the G-20 meeting, officials from Brazil and India have signaled they will join the U.S., traditionally the most vocal proponent of a speedier yuan appreciation, in calling on China to have a more flexible exchange rate. A G-20 official told Dow Jones Newswires the three countries had formed an "unofficial pact to express their disappointment," with China's currency policy, adding this is the first time India and Brazil have come out in the open to criticize Beijing on the issue.

This comes after Mexico's central bank governor Agustin Carstens, also speaking here Thursday ahead of the G-20 meeting, said Asian countries should adopt flexible exchange-rate regimes, stressing that flexible currencies act as shock absorbers during crises. Mexico's voice bears particular significance as it heads, together with Germany, the G-20's working group on the reform of the global monetary system and will be the next G-20 chair in 2012.

In a thinly veiled criticism of China, German Finance Minister Wolfgang Schaeuble told German radio Friday that the country reached its strong export position in the world as a result of its competitiveness and couldn't be compared with countries that have achieved a trade surplus through currency manipulation.

As G-20 chair, France has been careful to tackle the vexed issue of currency misalignments in an indirect way to avoid antagonizing China, which it wants to include in global currency discussions. Instead of addressing currency levels head-on, France hopes to foster a global discussion on currency volatility by stressing the need for the world monetary system to be less centered on the U.S. dollar and give more of a role to emerging currencies, including the yuan.

Inflation is also likely to be a hot topic at the event against the backdrop of rising energy and food prices, and is an issue at the center of the French G-20 agenda. France wants to better regulate commodities markets in a bid to curb price volatility, which it says weighs on global growth.

In an interview with French daily Le Monde Friday, Bank of France Governor Christian Noyer said the ECB is closely monitoring inflation in a bid to prevent second-round effects from becoming entrenched in inflation expectations -which is when workers expect the rise in food and energy prices to be passed on to wages.

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