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Asia needs common currency: economists
Aug 19, 2005
East Asian nations, including South Korea, Japan and China, should create a single currency to shield themselves from any volatile movements of the U.S. dollar, two Korean economists said on Friday (Aug. 19).
Korea Institute of Finance economist Choi Gong-pil and Korea Institute for International Economic Policy economist Yoon Deok-ryong said in an international seminar on Asian currency integration held in Seoul that under the current U.S. dollar-dominated currency system, Asian countries will not be able to maintain regional financial stability and sustain high economic growth.
They said that given the current situation in which economic conditions vary in Asia, the most viable way to stabilize the regional financial market is by creating a common currency in Asia.
"Under any plausible scenario, some type of regional currency needs to be developed to promote an environment suitable for financial and monetary cooperation that is, in turn, conducive to capital market development," Choi said in the forum.
He pointed out that the imperatives for regional cooperation to achieve sovereign stability are now strong because markets are too constricted to withstand various shocks. He added that there is also a lack of coordination for bringing together necessary elements to achieve regional stability.
"Asian nations have continued raking in U.S. treasuries _ they depend too much on the U.S. export market and no financial markets able to absorb the current account surplus exist," Choi said.
"If this trend continues, Asian nations will face a growing financial risk caused by a sharp fall in dollar values, thus increasing instability in the global financial system," he added.
Yoon stressed that the key to solving this problem is to create a regional currency, the so-called Asian Currency Unit (ACU), seen as a basket of intra-regional currencies, which he says is the approach taken by Europe.
"First, it is important that we pool our efforts to create the ACU and use it as a parallel currency," he said. This would help diversify risks regionally and globally, which would facilitate the global adjustment.
Second, the ACU can be created by using excess foreign reserves as a special fund that can issue convertible ACUs.
"Third, the organizing body would monitor and help stabilize the value of the ACU over the intermediate run," he added.