Yuan alternative backed

Yuan alternative backed

EXPERTS SAY ASIA SUFFERS FROM LACK OF COMMON CURRENCY

The rising role of Asia in the world economy and the failure of the existing international monetary system to set proper values for currencies has underlined the importance of a new international currency.

But while participants at a roundtable discussion yesterday hosted by the Asia-Europe Foundation agreed that the Chinese yuan was the best alternative to counterbalance the current dominance of the US dollar, the likelihood of it being adopted internationally is remote.

Paola Subacchi, research director for international economics at Chatham House, said without a better alternative, Asian economies would continue to buy US government assets with their foreign reserves built up by capital inflows, thereby continuing to finance the US deficit and feeding the circle.

"A well-functioning international monetary system should allow an adjustment between countries with surpluses and deficits in its balance of payments," she said.

"This is not happening any more. There is growing polarisation between countries with surpluses and countries with deficits."

Holders of the dollar assets are now concerned that their assets risk losing value because of the dollar's depreciation. The People's Bank of China proposed the idea of the new international system in 2009, Mrs Subacchi said.

But choices are limited. China is unlikely to free up capital controls to allow greater convertibility of the yuan in the near term, while Asian economies are unlikely to embrace the common currency concept in the foreseeable future.

"In some way, people have long acknowledged that the world economy is multipolarised. We recognise the fact it is not the US and the rest of the world," she said.

"The multi-polar world economy needs multiple currencies. But we are not there yet.

"The dollar will remain the dominant currency for years to come."

Mrs Subacchi was one of several dozen financial and media experts speaking yesterday at the sixth Asia-Europe Editors' Roundtable.

Conclusions from the roundtable will be forwarded to Asian and European finance ministers meeting at the 10th Asia-Europe Finance Ministers Meeting tomorrow in Bangkok.

One key point is the importance of political integration in resolving economic crises.

"Political integration closely links to economic integration," Mrs Subacchi said.

"That is the direction we are considering going in."Park Jae-ha, a deputy dean for the Asian Development Bank Institute, said Asian economies should find a new mechanism targeting a stable intra-regional exchange rate to facilitate trade, as the common currency concept remains remote.

One approach is to allow their currencies to be flexible against major global currencies to allow reduced fluctuation of intra-regional foreign exchange, he said.

Asian countries should create a coordination framework for it. The Chiang Mai Initiative aims at providing short-term liquidity supports to Asian economies with problems, but does not address foreign exchange stability, Mr Park said.

The Chiang Mai Initiative was launched following the 1997 Asian economic crisis as a programme giving Asean, Japanese, Chinese and South Korean central banks a means of accessing funds in times of liquidity crises.

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