Asia Starts Ball Rolling On Single Currency

by Mary Swire, Tax-News.com, Hong Kong

08 May 2006

South Korea, China and Japan have agreed to form a task force within the year to produce a roadmap for the creation of a common Asian currency, mimicking the euro.

“South Korea, China and Japan have agreed on the concept of an Asian Currency Unit (ACU) and will start discussions for its creation this year in an effort to promote financial integration of Asia,” South Korea's Deputy Prime Minister and Finance and Economy Minister Han Duck-soo told reporters last week.

Han made the announcement after meeting with China's Jin Renqing and Japan's Sadakazu Tanigaki at the 6th meeting of finance ministers of the three neighbours, held on the sidelines of the Asian Development Bank (ADB)'s annual meeting.

The idea of an Asian single currency similar to the Euro has been discussed in the region since the Asian financial crisis in the late 1990s, as a way of insulating individual economies against volatile swings in the value of the US dollar.

“The idea of developing a single Asian currency has widely been shared by Asian policymakers, but there has been no concrete action on government level,” noted Kwon Tae-kyun, head of the South Korean Finance Ministry' International Finance Bureau, who attended the tripartite meeting.

“The three nations shared views that it is time to start a debate on the creation of a common currency. For that ultimate goal, we will form a joint research team this year," he added.

However, while the major players in the Asia are keen to start the ball rolling towards the adoption of a single currency, the region's politicians concede that the ACU could be decades in the making, noting that it took European countries thirty years to introduce the Euro.

Asian finance ministers have also been discussing the consolidation of a regional liquidity support system, called the Chiang Mai Initiative (CMI), adopted in 2000 to battle speculative runs on currencies. By signing foreign exchange swap deals for the past years, the countries have doubled the amount of emergency funds to be provided to currency crisis-hit nations to some $75 billion.

The ASEAN+3 nations are now preparing post-CMI measures to cement their currency support system. This group includes the ten member countries of ASEAN (Association of South East Asian Nations, comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) plus China, Japan and South Korea.

In addition, China, Japan and South Korea are planning to strengthen their roles in global financial institutions such as the International Monetary Fund and the World Bank, with a view to achieving a higher degree of financial integration between Asian economies.

“We acknowledged the importance of addressing the issue of significant under-representation of the countries whose current economic strength and the relative position in the global economy are not properly reflected in the international financial institutions,” Minister Han stated.

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