Baby steps to a common Asian
currency By Shehla Raza Hasan
KOLKATA - The concept of an Asian Currency
Unit (ACU) was resurrected last month by the Asian
Development Bank (ADB) and will be considered
again at the bank's annual meeting early this
month in Hyderabad, India. After that it could be
launched as early as the end of June.
The
unit was born as a concept almost 10 years ago,
prior to the Asian currency meltdown. It is a
notional unit of exchange based on a "basket" or
weighted average of currencies used in the 10
member states of the Association of Southeast
Asian Nations plus South Korea, China and Japan
(ASEAN plus 3).
It was primarily mooted to
help develop regional bond markets and promote
monetary cooperation among Asian economies. This
idea, contemplated on and off
over the years, got a big boost last month, and
the ADB seemed definitely committed. The launch
was held up by the need to settle some divisive
views and political anxieties:
Inclusion of the currencies of Taiwan, Hong
Kong, Australia and New Zealand, an idea strongly
contested by China and the ASEAN states.
Exclusion of India in the first round of
talks. It is important for India to be part of the
initial negotiations so that it reflects the
interests of Indian business. It is believed that
Singapore, a strong ally of India, is pushing for
its inclusion in the first stage of talks, which
will develop the concept of the unit.
Need for consensus relating to the weighting
and components of the ACU based on countries'
share of nominal gross domestic product (GDP) as
well as trade volume, the level of capital flows
or convertibility of their currencies.
Some of the long-term issues that need
attention are:
Hegemony of stronger
states. Smaller Southeast Asian states
allegedly feel threatened by China's growing
economic power and Japan's isolationist economic
policy. They also question whether the currencies
of Australia and New Zealand should be included
with India in the second round. It is argued that
it was impossible to replicate the euro experience
because Europe had sorted out the question of
hegemony long before the question of a single
currency was mooted.
Substantial
diversity in Asian economies. Critics also
point out that the concept of Asia has been
defined only by its geography. There is a
substantial gap in the growth and development of
countries within this region. Cambodia and Laos
have a substantial chunk of population below the
poverty line.
The euro experience - a
good learning process. The architects of the
ACU are making efforts to point out that they are
not trying to make the ACU the Asian equivalent of
the euro. The unit would merely be an indicator of
exchange rates, with no exchange-market
interventions. There is also talk of changing the
name to "Asian currency index" to set it apart
from the European Currency Unit, which was the
precursor of the euro.
The primary purpose
of the ACU would be to facilitate the development
of an Asian multi-currency bond market,
strengthening of capital markets to make them
resistant to external shocks. The ACU would
reflect how the region's currencies as a whole
move against the dollar and the euro and how each
currency in the ACU moves against the average
level of participating currencies. The evolution
of the euro could at best be a good learning
process.
The ideal preconditions that
existed in Europe prior to the introduction of the
euro, but either don't exist in Asia or are only
emerging, were pointed out by Roberto F De Ocampo,
former Philippine finance secretary:
High trade interdependencies.
Common acceptance of basic political and
social values (democracy, a market economy with a
strong welfare state).
Fairly even economic development and
comparable living standards.
Strong commitment to solidarity.
The
past few years have witnessed higher trade
interdependencies in East Asia than ever before.
Reportedly, this is happening at a much faster
rate than Europe ever experienced. Trade volume
among the ASEAN plus 3 countries has swelled, with
trade between China and ASEAN poised to reach
US$200 billion before 2010. Trade between India
and China increased more than 12 times over the
past five years.
Financial analysts point
out that it will not be long before ASEAN plus 3
set up a mechanism for exchange-rate stability,
not necessarily for safeguarding financial
stability in Asia but purely for self-interest.
Japan is a proactive member of the club, as Tokyo
is not too comfortable with China's emergence and
the fact that the yen may be overshadowed by the
yuan. It has shed its isolationist tendencies for
this reason.
It is therefore understood
that several steps need to be taken toward
creation of a unified currency structure in Asia.
Certain absolutely necessary requirements are
information exchange and policy dialogue on
surveillance, initiation of a central reserve pool
for financing the liquidity needs of member
countries, and cooperation in developing suitable
mechanisms for regulation and supervision.
Nevertheless, this initial step toward a
single common currency needs to be preceded by a
common single market. The benefits of an eventual
single currency are numerous. It will increase
market transparency by making prices more easily
comparable. Cross-border transactions will also
become more attractive as market operators will no
longer be exposed to exchange-rate risks, and
costs associated with currency conversion will be
eliminated.
The single market will become
one of the main pillars of economic and monetary
integration. However, any expectations of a common
Asian currency in a holistic sense is a long way
off. This trend, which began in East Asia, will
have to be popularized in the more difficult
terrains of South and Central Asia. The toughest
challenge will perhaps come when it is time for
West Asia to be part of the system.
Shehla Raza Hasan is a freelance
writer based in Kolkata.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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