Regional currency requires leadership, cooperation

May 29, 2006

ACU would stabilize exchange rates, boost region's competitiveness

Thai Finance Minister Thanong Bidaya called on Asian countries to work more closely in currency and finance policy, with an eye to eventually establishing an Asian Currency Unit, or ACU.

Thanong made the remarks at a session on Asian currencies at the 12th Future of Asia international conference.

By introducing the ACU, exchange rates for trade within the region could be stabilized, he argued.

The ACU, which is still in the conceptual stage, is a monetary basket that is a weighted index of East Asian currencies. Although it would not be a real currency with bills and coins, Asian nations would be able to use it to settle intra-regional trade.

"Financial and currency integration is not something that happens by itself," said Institute for International Monetary Affairs President Toyoo Gyohten. "In creating a single currency, strong political cooperation and leadership are needed."

Kwan Chi Hung, senior fellow at Nomura Institute of Capital Markets Research, noted that China has become more active in intra-regional cooperation ever since the Asian currency crisis, and that the country may in fact be more enthusiastic than Japan about such ideas as the ACU and the Asian bond market.

"China has learned that stability in the Asian region is extremely important for China," said Kwan. "And it also understands that as Asian economies move toward integration, the cooperation of each country is needed."

The panelists also discussed issues regarding the yuan.

"In order for East Asia and China to grow without losing international competitiveness, the yuan must be revaluated higher at an even faster pace," said Masahiro Kawai, head of the Asian Development Bank's Office of Regional Economic Integration.

Kwan said that the globalization of the yuan has both advantages and disadvantages for China. "Companies that conduct international transactions with currencies of their own countries will see lower foreign exchange risks." A disadvantage would be that China's own financial policies would be restricted considerably, noted Kwan.

Energy dilemma

Meanwhile, at another session, panelists discussed challenges for overcoming Asia's energy dilemma.

Zhou Dadi, director general of the Energy Research Institute, part of China's National Development and Reform Commission, touched on the problem of crude oil output capacity, which is not increasing because oil-producing countries are not investing enough. "We need to resolve this issue through dialogue between the users and the suppliers," he said.

Katsuhiko Suetsugu, secretary-general of the Asia-Pacific Energy Forum, raised the question of what to do with oil reserves in Russia. "If Russia gives priority to development, then the world's supply-demand balance would take a turn for the better," he argued.

(The Nikkei Weekly May 29 Issue)

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.