39th Annual Meeting

Boost for new monetary scheme

ASEAN+3 finance ministers to back Asian Currency Unit plan

By Anthony Rowley

ASEAN+3 finance ministers meeting today will mandate measures for cementing regional monetary and financial integration, including taking up an initiative launched by the ADB to promote an Asian Currency Unit.

The ACU - an index of regional currencies, which could eventually form the basis of an Asian unit of account - has proved controversial and requires “political”decisions, Japan’s vice finance minister for international affairs, Hiroshi Watanabe, told Emerging Markets.

The ministers will also approve steps to bolster Asia’s role within the IMF and to put the region’s relations with the Washington-based institution back onto a firmer footing, according to Watanabe. On today’s agenda too will be an agreement on taking the network of bilateral currency swaps known as the Chiang Mai Initiative into a “post- CMI” stage of multilateral management, as well as new initiatives to promote a pan-Asian bond market.

Promoted by the ADB as what one official termed an “academic exercise” in regional cooperation, the ACU idea quickly ran into flack from within and beyond Asia. Washington saw it as a possible new Asian currency in the making, and as a threat to the dollar, while China opposed inclusion of currencies such as the New Taiwan and Hong Kong dollars in the currency index. Financial markets complained that exclusion of such currencies would make the ACU meaningless.

The ADB was forced to put the ACU scheme - which had been promoted vigorously by head of the bank’s office for regional economic integration Masahiro Kawai - onto the back burner. But the ASEAN+3 finance ministers have decided to run with the idea and will instruct their deputies today to launch a detailed study, Watanabe told Emerging Markets. But debate is likely to take “some time” before any agreement can be reached, he cautioned.

“The ACU is one good example of regional cooperation [but] it is very political and will require much closer discussion,” he said. Watanabe described the ADB’s ideas for an ACU as “hypothetical” and stressed that “a real outcome, one that can be used in the market” is what is needed now. Stabilization of Asian currencies relative to each other and to outside currencies is desirable but can only be achieved through government involvement, he said.

This article first appeared in Emerging Markets, the newspaper of record for the world's development bank meetings.