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Asian currency is inevitable
http://www.sina.com.cn 2005/02/25 20:02  Shanghai Daily

  Quick integration of East Asia's economies will provide a shot in the arm for the inevitable birth of a unified Asian currency.

  It took Europe about 40 years to produce the euro, but I believe full integration of East Asia's economies will occur in the next eight to 10 years - though the road to an Asian currency may be longer.

  I am optimistic for the following reasons.

  First, fast integration of East Asia's economies. The complimentary nature of the region's economies allows the efficient allocation of capital, labor and natural resources.

  Singapore, Japan, Hong Kong and Taiwan are capital exporters. China's mainland is abundant in labor and land. Malaysia, Indonesia and Brunei are rich in oil reserves.

  Moreover, most of their external trade occurs among themselves. For example, trade with partners in the region accounts for about 60 percent of both China's and Singapore's total foreign trade. About 70 percent of foreign investment in China is from within the region.

  The "Asia House" concept is better accepted now than it was 10 years ago.

  Secondly, the integration of economic policies in East Asia is increasing. In 2003, 11 Asian countries and regions pooled US$1 billion from their forex reserves to set up the Asia Bond Fund - designed to help smaller economies during a financial crisis.

  Thirdly and most importantly, first-tier economies such as China's mainland, Hong Kong, Taiwan, and Singapore have converged their economic data systems for calculations on GDP growth, inflation, interest rates, currency rates and foreign debt-GDP ratio. These four economies will be the locomotive of Asia's economic integration process.

  Cultural integration remains an obstacle. East Asian countries and regions are growing closer, especially those influenced by Chinese culture such as Singapore, China's mainland, Hong Kong, Taiwan, Thailand, Malaysia and part of South Korea.

  Japan remains an exception. Although it is actively involved in economic integration with the region, Japan is out of tune with other countries or regions both politically and culturally.

  For example, it insists only Japanese be used in economic contracts or IPO prospectuses. Its leaders also continue to pray at the Yasukuni Shrine, where many WWII war criminals were enshrined.

  Therefore, as the majority of first-tier economies share similar cultures, the center of future integration should be China, not Japan.

  The day of a unified Asian currency is in sight as East Asia's economies find themselves more integrated with India and other South Asian countries.

  A unified Asian currency needs to be based on the back of a strong core currency. Japan is not a suitable candidate for this position since the yen is unstable and its economy sluggish.

  Although the Singaporean dollar is strong, the country's economy is too small. It isn't a good choice either.

  China, backed by a strong domestic economy and robust foreign trade, is a natural candidate. And the currency is already strong. With the opening of renminbi services to foreign banks next year, it will become an international currency that is freely exchanged within five years.

  If the renminbi remains stable, it is likely to become the core currency of a unified Asian currency, which will come in two steps.

  First, forex control is lifted and foreign exchange rates remain stable within the region. The economies then can open capital accounts with one another. During this initial stage, a peg to the US dollar will help avert international speculation.

  The second stage features a unified currency. This period can be further divided into several steps, such as allowing forex rates to fluctuate within a certain band, and establishing a policy coordination organization.

  (The author is Dean of the Business School at East China University of Politics & Law. The views expressed are his own.)




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