Asian 'safety net' stressed

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By Li Xiaokun in Bandar Seri Begawan, Brunei, and Chen Jia in Beijing (China Daily) 09:13, October 11, 2013

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Premier calls for better use of regional foreign exchange pool

Premier Li Keqiang called on Southeast and East Asia to improve the regional financial firewall on Thursday by better using a regional foreign exchange fund, among other measures.

A multilayer regional financial safety net should be improved to help withstand global market volatility, Li said at a summit that brought together leaders from the Association of Southeast Asian Nations plus China, Japan and South Korea, in Bandar Seri Begawan, Brunei.

Analysts said Li's call comes as Asian markets have recently been hit hard by the US plan to pull back from a liquidity-boosting program, a decision that Washington later said it would reconsider.
Li said measures to strengthen regional financial cooperation can include boosting domestic foreign exchange reserves, expanding the regional foreign exchange pool and improving bilateral currency swap mechanisms.

Li pledged to "improve and work out the details of operating procedures for the $240 billion foreign exchange pool and explore the possibility of improving the use of local currencies" under the framework of a currency swap arrangement known as the Chiang Mai Initiative Multilateralization.

These measures can help maintain financial stability and enhance economic efficiency, a former official said.

Wei Benhua, former deputy chief of the State Administration of Foreign Exchange, said the initiative has become an important fighting fund for Asia during financial crises.

The $240 billion bailout fund is a firewall to protect Asia from the spillover effect of financial meltdowns in other regions, Wei said.
He said the fund needs to be expanded as it appears small compared with the $590 billion value of its European equivalents, the European Financial Stability Fund and the European Stability Mechanism.

The initiative was signed by finance ministers of the 10 ASEAN member states along with China, South Korea and Japan in 2000 in Thailand.

In recent years, China has signed many currency swaps with other economies to facilitate trade and cut reliance on the US dollar.