For an Asian financial architecture - The Economic Times

For an Asian financial architecture- Opinion-The Economic Times

Asia needs a mechanism for generating additional demand to moderate the effect of global slowdown for sustaining its dynamism. Financial cooperation in Asia becomes especially relevant in the current context …

(Earlier) Japan had proposed Asian monetary fund as a regional lender of last resort but abandoned under western resistance … Chiang-Mai initiative (CMI) was launched by 10 ASEAN countries and China, Japan and South Korea (Asean+3) to provide liquidity assistance to countries in difficulty through a system of bilateral swaps.

We have been talking for some time for creating a regional mechanism (call it Reserve Bank of Asia, RBA or by another name) that will draw upon a very small part of the foreign exchange reserves of the region. Given the size of region’s forex reserves, even their modest 5% will create a pool of $200 billion.

RBA would be able to borrow from the region’s central banks at the prevailing rates of US treasury bills. Besides providing balance of payment support to the member countries in the period of crisis, RBA would invest and co-finance infrastructure projects — national as well as cross-border — in the region.

RBA could also provide for a basis for launching a unit of account namely Asian currency unit (ACU) for facilitating intra-regional trade by moderating the exchange rate volatility between the region’s currencies.

Another bankrupt idea

Apart from the recycled idea of creating an Asian IMF, there is little else. The above mentioned mechanism does not address the basic problem of too many dollar getting printed. Or that it could be the Euro tomorrow. Niether does it address the inequity of the current dollar hegemony - which may slowly turn into Dollar-Euro hegemony.

Such bankruptcy ideas deserve the trash can - and not space in newspapers.

What the Third World and Asia needs is a new reserve currency and a system for managing the same.