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Asian currency regime plan for Asia?

 
AseanAffairs     10 March 2011

A former Thai finance minister and former central bank governor, M.R. Pridiyathorn Devakul, said this week that an an Asian currency unit should be used as the benchmark currency for countries in the region if they want to efficiently cope with currency exchange fluctuation.

Speaking at a Wednesday seminar on "The Direction of the Thai Economy amid Fragility and Capital Flows," M.R. Pridiyathorn Devakul said he appreciated the Bank of Thailand's efforts to manage the currency exchange rate during the past five months, official media MCOT reported.

Its determination to cope with exchange rate volatility helped stop the speculation on the value of the baht, which made the currency more stable.

However, Thailand should study what China achieved in controlling the yuan by exchange rate targeting if it wants to control the Thai baht's movement in the long term.

He said it was unwise to allow the baht to float amid capital flows into Asia because it could make the currency fluctuate heavily.

The adoption of an Asian currency unit as the benchmark currency of the countries in the region is another efficient approach to curbing the currency exchange volatility because it could make currencies in Asia move in the same direction. Should all Asian countries cooperate to adopt that, it would help boost trade and investment in the region, he said.

A third option is to encourage Asian countries to adopt a single currency, but such an approach is impracticable because the economic and trade activities of the countries in the region are different in terms of value and volume, he said.

This potential plan is an idea that has been floating around Asia concurrent with the rise of the Chinese economy. But one wonders if Japan would go along with this plan given its historical relationship with China And what would be the reaction of another rising Asian economy, India?

These and more issues will have to be dealt with before the yuan becomes the backing currency in Asia.

By

Paul A. Ebeling, Jnr