A leading economist said in Seoul yesterday that the U.S. dollar`s supremacy as the world`s reserve currency is facing profound challenges as the balance of economic and financial power shifts East amid the current economic crisis.

"There is a slow-burning fuse underneath the dollar," Gerard Lyons, chief economist at Standard Chartered Bank, said in the World Economic Forum.

Underscoring the strengthening role of Asia, Lyons said that the depth of the global downturn drove key emerging economies, such as China and Russia, to cite the possibility of a new global reserve currency.

The forum drew a group of leading figures from business, government and academic circles to discuss Asia`s role in helping to overcome the current crisis and shaping a future paradigm for the global system.



"This is not just an economic crisis but also a social crisis," Rajat Nag, managing director-general of the Asian Development Bank in Manila, told participants of the convention, referring to the worsened social conditions stemming from a rise in unemployment. "Asia has to start on a different paradigm," the executive stressed.

He noted that the Asian economy, which enjoyed 9.5 percent growth in 2007, saw the rate fall to 6.3 percent in 2008, while this year it has spiraled further to 3.4 percent. Citing projections of 6 percent growth in 2010 for Asia, excluding Japan, Nag underlined the challenging times ahead.

About 400 of Asia`s leading decision-makers from over 35 countries representing various public and private sectors from over 35 countries have gathered for this regional meeting themed "Implications of the Global Economic Crisis for East Asia."

The WEF said the event is designed to facilitate steps toward greater international and regional cooperation. They hope the discussions would inspire a clear direction for building a common agenda for reviving the global economy through new models of growth, technology and corporate practice.

According to the WEF, Asia`s share of global GDP and its growing stake in international institutions point to the region`s importance in restoring economic growth.

Reflecting the region`s importance in rebalancing the international economic dynamics, participants stressed the greater leadership role of Asia`s G20 members, as the United States focuses on strengthening trans-Pacific alliances.

Noting that the unprecedented economic crisis offers invaluable lessons, Peter Sands, chairman of the WEF on East Asia and group CEO of Standard Chartered Bank in the United Kingdom, cited the "huge need for coordination in regulation."

"I think it`s very important for Asian countries to play a strong role in financial regulation architecture," Sands said, however, noting that proposals for global financial regulations still looked far-fetched.

The executive cited difficulties in striking a balance in tempering excesses of the market and continuing to use markets as a price-setting mechanism. But he also cautioned against too much regulation, stressing that more regulations was not necessary better.

With the leaders gathered in Korea, the location for the G20 Summit in 2010, they said the latest forum could not have been in a better place, as the participating leaders believe Asia needs to take a key role in shaping the post-crisis world. The G20 has come to act as a major vehicle for addressing global economic challenges.

"The G20 is where the game is at right now," Sands said. He believes Korea would have the opportunity to lead by advancing its national interests or those of its partners in East Asia, as well as by achieving global objectives including the rebalancing of the global economy and the restructuring of institutions of international governance.

"There is some vacancy in global governance," former Japanese minister Heizo Takenaka, Director of the Global Security Research Institute at Keio University in Tokyo told participants. The G20 countries, he remarked, "have to move from policies to help to policies to solve, from reactive policies to proactive policies. Fundamental reform of global governance has to be discussed very seriously."

Ahn Ho-young, Korea`s deputy trade minister, said G20 members have been making "important tangible progress" on five points aimed at coping with the crisis. These points are: maintaining liquidity; the need to move on in the post-crisis through economic coordination; avoiding protectionism; making it an opportunity for demonstrating the G20`s indispensable role in building new financial architecture; and giving large financial institutions, such as the International Monetary Fund, a greater role.

"In our collective efforts to stabilize the East Asian financial environment, global efforts, such as the G20 summit, are also very important," Cho Suck-rai, chairman of the Federation of Korean Industries, a co-sponsor of the World Economic Forum on East Asia, told participants during a luncheon. "In line with the development of a regional financial market, its stabilization is also needed," he added. The executive, who is also chairman and CEO of Hyosung Group, expressed the need for an international body that can supplement the functions of the IMF in Asia, such as an Asian Monetary Fund.

"Last May, the Chiang Mai Initiative developed into a multilateral agreement. I think this agreement will serve as a founding block toward an AMF," he said.

(sohjung@heraldm.com)

By Yoo Soh-jung