Currency swap
calls for $20bn support
May 4, 2000
SOME US$20 billion to US$40 billion will be needed to
support the formation of a regional currency swap arrangement which will be
discussed by top finance officials at the upcoming Asian Development Bank
meeting in Chiang Mai, said Eisuke Sakakibara, the former vice
minister/international affairs of the Japanese Finance Ministry.
However, the officials will be talking about an initial
size of US$200 million, which is barely enough to forestall the next financial
crisis.
Speaking yesterday at a special conference organised by the
Nation Multimedia Group, Sakakibara, generally known as Mr Yen, said Asia is
moving towards the right decision in forming a regional currency swap
arrangement to support currencies in the region in time of crisis.
"At least, it is a good start," he said.
Sakakibara added that he understood that the Thai government is also taking a
leadership role in creating the currency swap arrangement which will encompass
broader participation among the key economies in the region.
For the first time ever, finance ministers from Association
of Southeast Asian Nations will be meeting their counterparts from China, Korea
and Japan in the corridors of the ADB conference to discuss the possibility of
forming a regional currency swap arrangement.
This measure is seen as a self-defence mechanism in the
event of the threat of another financial crisis. A regional currency swap
arrangement would allow member countries to intervene in foreign exchange
markets to stabilise their currencies if a crisis breaks out.
Asian countries have learnt from past mistakes that with
the imperfect international financial system, they have to rely on their own
regional cooperation to forestall the next crisis. In a way, the Asia crisis
could have been prevented or the damages could have been alleviated if there
were a lender of last resort.
After the crisis broke out in 1997 with the baht
devaluation, the International Monetary Fund, the World Bank or the G7 countries
were reluctant to act as the lender of last resort in the face of panicky
capital outflow from Thailand, Indonesia and South Korea.
Without a global central bank acting as lender of last
resort, Japan floated the idea of an Asian Monetary Fund in August 1997.
Sakakibara himself was playing an active role behind this drive to create a
regional central bank, which would provided liquidity support to crisis-hit
countries.
The size of the fund was then put at US$100 billion. The
money would come from contribution of the central banks in the region, which
should put half of their foreign exchange reserves into this regional fund.
"If Japan, China, Hong Kong, Korea and Southeast Asian
countries provide, say, half of their reserves to the fund with specific
arrangements for its activation, it should serve as an effective regional lender
of last resort for the next liquidity crisis," Sakakibara said.
However, by October and November the same year, the Asian
Monetary Fund was shot down by the United States and Europe which were afraid
that the fund would supersede the IMF and create a moral hazard among the member
countries. During the crisis, The US and Europe also failed to provide direct
liquidity support to Thailand and other crisis-hit countries, believing that the
crisis would not develop into a global financial turbulence.
However, Sakakibara argued that if the Asian Monetary Fund
is to be narrowly defined as a source of provision of liquidity in time of
crisis with specific formula for private sector participation, it could
complement the existing function of the IMF.
BY THANONG KHANTHONG
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