Source: Nation, the (Thailand)
Source type: Newspaper
Published on: 01 Aug 2009

Six years ago, Dr Olarn Chaipravat, then a senior Finance Ministry advisor, predicted that the Chiang Mai Initiative signed by 13 Asian countries, including Thailand, in May 2000 could lead to a single Asian currency in the next 15-20 years.

A critical part of such an ambitious vision is set for further discussion this weekend in Beijing -- the venue for more than 40 leaders of Asian and European countries attending the Asia-Europe Meeting (Asem)'s Summit.

Olarn, now a deputy premier in the Somchai government in charge of economic affairs, has proposed the set-up of a US$350-billion Asian fund to protect the region's currencies and intervene in regional stock and bond markets.

His proposal came hot on the heels of the global financial crisis and credit crunch.

The Thai deputy premier also proposed that China ease its currency conversion rules to facilitate the pooling of foreign exchange reserves currently held separately by individual Asian countries.

Thanks to its huge and successful export machinery, China currently has the world's largest foreign exchange reserve of US$1.8 trillion, followed by Japan's $900 billion.

Earlier, China, Japan, and Korea proposed that an initial US$80 billion Asian fund is created in partnership with the 10-country Asean.

China, Japan, and Korea will provide a combined 80 per cent of the proposed fund, while Asean will provider the remainder.

This proposal is expected to be further discussed by Asian leaders on the sideline of Asem Summit in Beijing.

In a recent interview with Bloomberg, Olarn also urged China to consider open up its banking system and allow the yuan, which he said is now the strongest currency, to be the currency of the world.

Back in 2002, Olarn told me that currency union (as envisaged by Asian countries) generates economic benefits among participants in terms of increased trade and investment flows.

Olarn, a former president of Siam Commercial Bank, also noted that Thailand's signing of bilateral currency swap agreements worth US$7 billion (Bt290 billion) with other Asian countries back in the early 2000's was a milestone in regional co-operation efforts.

At the time, a total of 13 countries were involved in those currency swap agreements under the framework of Asean-Plus-Three (China, Japan, and Korea.

Based on that initial agreement, Asia could have a currency union scheme worth an estimated $65 billion that could serve as a solid defence of each member country's national currency during critical times, according to Olarn.

He also believed that the scheme could serve as a foundation for monetary union in the future in a fashion similar to the European Monetary Union, the precursor of the euro.

In Asia, economic rather political factors were the trigger for closer ties as exemplified by the 1997 Asian financial crisis during which the baht was sharply devalued after a failed defence by the Bank of Thailand.

According to Olarn, the signing of swap agreements should be followed by easing of currency restrictions in China, Malaysia, and Hong Kong, which previously pegged their units to the dollar.

Then, an Asian currency fund could be set up along with a regional surveillance and coordination body under the auspices of the Asean Secretariat or the Asian Development Bank.

By Nophakhun Limsamarnphun
The Nation

Published on August 1, 2009