Kuroda Says Asia Can Start Discussing Common Currency
Asia can start discussions on a shared currency to avoid “intra-regional exchange rate complications,” Asian Development Bank President Haruhiko Kuroda said today.
“I hold the view that we can start discussions and seriously discuss this issue,” he said at a public lecture in Singapore. “Although it may take decades, eventually I think we may be able to establish a common currency.”
Asian governments have been debating the merits of a shared currency since the region’s economies were rocked by a financial crisis a decade ago. The 10-country Association of Southeast Asian Nations, or Asean, is proceeding with efforts to create an economic zone modeled after the European Union, without a common currency, by 2015.
“Creating a common currency does involve overcoming hurdles,” Kuroda said. These include the need to have a common market, some harmonization of macroeconomic policies, a regional central bank that would require regional countries give up their currencies and independent monetary policies, he said.
Asean members agreed with Japan, China and South Korea in May to start a $120 billion foreign-currency reserve pool by year-end, to be used in times of turmoil as the region sought ways to shield its economies from the worst global recession since the Great Depression.
The pool, an expansion of an existing framework of bilateral currency swaps, widens access to foreign-exchange reserves and will allow nations such as Indonesia and Thailand, recipients of International Monetary Fund bailouts a decade ago, to defend their currencies business cards for sale.
Chiang Mai Initiative
Kuroda said he was “quite confident” that talks on expanding the so-called Chiang Mai Initiative will be completed by the end of this year. Countries outside Asean and the three northern neighbors may participate in the initiative in the future, he said.
Asian countries must increase communication on their foreign exchange policies as currency volatility can affect regional financial systems, Kuroda said, without elaborating. Establishing a mechanism to monitor regional currency movements would benefit the region, he added.
Kuroda doesn’t expect central banks that are large holders of dollar-denominated assets to sell out of those holdings, he said. The central banks are “locked in” because they would incur large losses by selling the dollar assets, he said.
The dollar’s status as the world economy’s sole reserve currency has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning U.S. budget deficit. Russian President Dmitry Medvedev this month proposed that nations use a mix of regional reserve currencies to reduce reliance on the dollar.