Over the years, and after the launch of the Euro currency in 1999, there have been renewed calls of the decade old idea for the creation of a similar currency in Asia with suggestions that Japan should take the political initiatives to achieve the Asian monetary unification in the 2030s that supplements, if not replaces, the current fragile international economic and financial system.
In a report by the Institute for International Policy Studies (IIPS), the U.S. can no longer resolve current global economic crisis. It also says that in order for the entire Asian region to keep growing, Asian leaders must create the third-polar regime in Asia by introducing a common currency which will not only stand on par with the US dollar and the Euro currency, but also aims to supplement the dollar regime, which will retain its status as the global’s key currency despite the continued erosion in the relative strength of the U.S. economy, along with the euro currency. The creation of an open, multilayered international economic and financial system is also vital to ensure stable, sustainable development of the world economy.
Several former ranking officials from Japan’s Finance Ministry and the Bank of Japan took part in the newly created IIPS group’s discussions and issued a plan for reconstructing the Bretton-Woods system, the U.S.-led post war international financial and currency setup.
In the short term, international efforts will be focused on the disposal of massive bad debt by the mid-2010s while achieving a full-fledged economic pickup and working out a new international mechanism to oversee financial transactions within the framework of the current international system, the report says.
In the medium- and longer terms, however, Japan should take a leading role in building a new international system via a unified Asian currency as its principal component, it proposes.
According to the plan, an intra-regional collaboration mechanism in Asia should be operating in the 2010s with Japan and China as Asia’s two largest economies reaching a consensus on the institution of the Asian currency unit (ACU) which will be based on a “basket,” or the weighted average of currencies used in the 10-member Association of Southeast Asia Countries plus Japan, China and South Korea (ASEAN+3).
It also envisaged the establishment of a conference of central bankers and finance ministers from the ASEAN+3, and even China’s decision to float the yuan, during this first-stage decade.
At the ASEAN+3 finance ministerial meeting in Hanoi in April 2011, China’s leadership rivalry with Japan became a talking point, where China got its way in grabbing the plum appointment at the newly created ASEAN+3 Macroeconomic Research Office (AMRO), a Singapore-based regional financial surveillance body with the former vice-head of China’s State Administration of Foreign Exchange, Mr Wei Benhua as its first director in May 2011.
The news was followed by a controversial suggestion from Malaysian Deputy Finance Minister Lim Siang Chai that China should lead in creating a unified Asian currency.
With China pushing for a greater role in regional affairs, its currency regime moves that are closely followed by its Asian neighbours, and that the yuan is certain to be featured prominently in the common currency, the prospect of leading one of the most aspirational pan-Asian initiatives that was once championed by Japan, seems attractive. As a result, China began asserting its voice on the ASEAN+3 platforms.
In a survey led by Pradumna Bickram Rana from the Nanyang Technological University which included 1,000 government officials, academics and bankers in the ASEAN+3 countries on implementing a regional currency unit, it was revealed that the regional currency unit should comprise a basket of Asian currencies — with the Chinese yuan and Japanese yen having the highest and equal weights. This effectively not only reflects the growing recognition of China’s economic clout and its currency’s importance, but also reduced Japan’s economic power as the world’s second largest economy which had been presenting itself as the leader in this decade-old idea of a common currency before the global financial crisis of 2008 diverted attention from it.
The weighting was to be based on the proportionate contributions made by ASEAN+3 members to the Chiang Mai Initiative Multilateralization (CMIM), which is a US$120 billion crisis fund established in the region on 24th March 2010, with the core objectives:
- to address balance of payment and short-term liquidity difficulties in the region, and
- to supplement the existing international financial arrangements, the CMIM will provide financial support through currency swap transactions among CMIM participants in times of liquidity need. Each CMIM participant is entitled, in accordance with the procedures and conditions set out in the Agreement, to swap its local currency with US Dollars for an amount up to its contribution multiplied by its purchasing multiplier
Japan and China (together with Hong Kong) had each agreed to contribute 32% of this amount. South Korea contributed 16% and with ASEAN contributed the remaining 20%. Singapore’s share of contribution is US$ 4.77 billion or 3.7%.
AMRO, as the surveillance unit of the CMIM, was also recommended as the agency best positioned to administer this currency, which would include calculating the value of this regional monetary unit and posting it on its website.
China had led the Asian pack out of the financial slump, and is moving quickly to regionalize its currency in Asia. This has included setting up clearing banks in Hong Kong and Singapore to support trade settlement and investment products denominated in yuan.
However, before we go any further into the issue of an Asian Currency, let us take a look at the present Euro crisis to have a better understanding of the nature of the crisis caused by the common currency.
Andrew Michael Teo 