Asian currency unit still a dream
It was recently reported that the Asian Development Bank would formulate a conceptual currency unit based on a package of Asian currencies in order to promote regional economic cooperation and development. This drew a series of reports on an "Asian Yuan".
The idea of an Asian Yuan, to be used throughout the region, was first proposed by former Malaysian Prime Minister Mahathir Mohamad in 1997 at the ASEAN summit. In 2003, the "Father of the Euro", Nobel Prize in Economics laureate, Robert Mondale, also proposed establishing a common currency in Asia, such as an "Asian Yuan". In 2005, at the Bo'ao Asian Forum Annual Meeting in Hainan province, Hong Kong SAR then acting chief, Donald Tsang, spoke of an "Asian Yuan". However, dreams do not take the place of reality. An Asian Yuan looks to remain a dream for the foreseeable future. Why?
Firstly, there are big differences in the level of economic development level between Asian countries. Asia is different to Europe in that its development is imbalanced. This difference is the major hindrance to an Asian Yuan.
In Asia, there are both economic powers and small countries whose economies are still based on traditional agriculture. There is a great gap in economic development and income not only between countries, but also between regions within countries. In terms of economic structure, China and ASEAN countries are similar as they all have labor-intensive industries, big export markets and their economies mainly rely on investment and exports. So in many ways, their relationship is somewhat competitive. Balanced economic development would be the foundation of an ¡®Asian Yuan', and to date, there is no such foundation in Asia.
Secondly, many Asian countries lack the political drive and incentive to instigate this kind of monetary reform. Due to historic, cultural and political differences, Asian countries lack cohesion. Unlike European countries, Asian countries aren't politically coordinated or aligned. Asian countries are very different; there are still disputes over land, sea and sovereignty between them, which occasionally threaten to boil over into a hot war. Political and economic systems are very different; there are also great differences in religious beliefs. An Asian Yuan would mean conceding some sovereignty. If Asia chose to adopt a unified currency, political restructuring would have to take place at a high level. Without common and equal political will, such a restructuring would not be easy.
Thirdly, there is no anchoring currency. Asia will encounter the issue of an "N" currency if they want to unify the currency. The initial objective of this would be to gain the maximum benefit from trade with the minimum of rights releases. Consequently, choosing an anchoring currency would be an issue. Neither the Japanese Yen nor the Chinese Yuan is currently reliable enough to be this. Japan's economic strength is comparable to Germany, but the Japanese Yen is not the German Mark. Japanese scholars propose using the Yen to establish a foreign exchange rate linking mechanism, similar to that of the Mark with the Euro. However, the Yen is not like Mark, which was a strong international currency. The Japanese Yen only accounts for 13.5 percent of currency in the world foreign exchange market, 6.2 percent of official foreign exchange reserves, 0.2 percent in international banking loans, 8.6 percent in international security issuances and 5 percent in international settlement of trade.
The yuan, the currency of the second economic power in Asia, has become a strong currency in Southeast Asia in recent years, but reforms of the yuan's exchange rate formulation mechanism have only just started and its future is unpredictable. Due to China's strict capital controls, weak financial sector and inflexible exchange timetable, the yuan cannot be the anchoring currency any time soon either.
All these obstacles would be difficult to eliminate in a short period of time. Asian countries need to face that reality and begin work on the preliminary stage of economic integration, strengthening regional economic cooperation. In the meantime, countries should avoid taking financial risks, establish a financial crisis prevention mechanism and aim for common and steady development in Asian countries.
By People's Daily Online; Sun Dongsheng, a Vice Professor from the Financial School at the University of International Business and Economics of China
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