Thailand's Finance Minister Calls For Asian Currency Unit

May 29, 2006

TOKYO (Nikkei)--Thai Finance Minister Thanong Bidaya on Friday called on Asian countries to work more closely in currency and finance policies, with an eye on eventually establishing the Asian Currency Unit, or ACU.

Thanong made the remarks at a session on Asian currencies at the 12th Future of Asia forum, an international conference sponsored by Nihon Keizai Shimbun Inc. that was held in Tokyo over two days starting on Thursday.

By introducing the ACU, exchange rates for trade within the region can 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 will not be a real currency with bills and coins, Asian nations will be able to use it to settle intraregional 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 is needed."

Kwan Chi Hung, senior fellow at Nomura Institute of Capital Markets Research, noted that China has become more active in intraregional 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 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 the Asian economy moves towards integration, the cooperation of each country is needed if the cost of trading is to be reduced by stabilizing exchange rates."

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 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, and Chinese financial institutions such as banks and brokerages will have an easier time expanding global operations," he said.

A disadvantage would be that China's own financial policies will be restricted considerably, noted Kwan.

"In order for the yuan to become a global currency, there are prerequisites such as free capital transactions and a sound financial system, but China as of right now has not satisfied all of these conditions," he said.

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 untouched oil in Russia.

"If Russia gives priority to development, then the world's supply-demand balance should take a turn for the better," he argued.

He said that this is a global issue, noting that Russian President Vladimir Putin has advocated an "energy imperialism" strategy.

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