Asean+3 Studying Possible Common Currency For Region - Internal Paper

[WALL STREET JOURNAL]

HANOI (Dow Jones)--Asian governments have been concretely studying the idea of a common currency, though an internal paper shows anything like a euro for the region is still far off.

An Asian "regional monetary unit" could provide a helpful macroeconomic monitoring tool and its use could in time be expanded to include official and private transactions, according to a study by a high-level research group reporting to Asian officials.

The paper, part of documents prepared for a meeting of Asian deputy finance ministers in Hanoi, and seen by Dow Jones Newswires, was written by Japan's Institute for International Monetary Affairs, Singapore's Nanyang Technological University, and the University of Indonesia.

Commissioned by Asean+3 finance ministers last May, the paper provides the first concrete evidence that Asian ministers are actively discussing the option of creating a quasi-currency, although any attempt to put such a system into practice would undoubtedly face huge challenges, such as the region's economic diversity.

The creation of a common Asian currency is occasionally discussed at regional finance meetings but always in the context of a long-term aspiration rather than a realistic goal for even the next decade. Toyoo Gyohten, IIMA President and a proponent of the idea, has said a basket of Asian currencies could be a precursor to a common currency.

The Association of Southeast Asian Nations comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The Asean+3 grouping includes China, Japan and South Korea.

The study suggested that the RMU be used for surveillance by the Asean+3 Macroeconomic Research Office, or AMRO, which is expected to play a key role in deciding whether member nations facing financial difficulties can tap a regional fund.

It said a survey had found that the high level of economic integration in the region meant having an RMU would be beneficial, because it could "accelerate the integration process."

"As economic integration deepens further in East Asia, it would be more beneficial to East Asian countries to adopt an exchange rate regime that collectively floats against the U.S. dollar and the euro while maintaining a stable intra-regional exchange rate," it said.

"Steps that will help deepen economic and financial integration and increase the benefit of using the RMU for surveillance and transaction purposes include facilitation of financial cooperation and intra-regional exchange rate stability, member countries' moves toward currency convertibility, taking sequencing of capital account liberalization into consideration and promotion of FTAs/EPAs within the region."

The use of a common monetary unit could also contribute to the development of financial and capital markets in the region, the report said, adding that its use for official and private transactions would likely become more feasible as economic and financial integration deepened.

The study noted that use of RMU for official purposes, such as payment among member governments or credit transactions among member authorities, could support private use of the common unit. It could also encourage individuals, businesses and financial institutions to consider using the RMU to diversify their foreign-exchange risks, it said.

"As short-term measures, RMU could be utilized for surveillance by announcing the RMU value on a daily basis and constant monitoring of RMU and RMU deviation," the study found. It added that political consensus would be needed for medium- and long-term measures, such as the currency unit's inclusion in the budget of AMRO or other Asean+3 activities.

The paper said several steps could be explored for using the RMU for private sector transactions: issuance of RMU-denominated bonds by government or multilateral institutions, preferential treatment for RMU-related operations in foreign exchange regulations, acknowledgement--de jure or de facto--of the RMU for private use as a foreign currency, accounting and tax treatment harmonization, and support for the establishment of an RMU fund settlement system.