ADB head calls for regional reserve currency

The president of the Asian Development Bank yesterday called for an "Asia-common" currency as another international reserve currency, as part of the region`s joint effort to prevent another global financial crisis.

"Asia could make the third international currency or Asia-common currency in the near future," ADB President Haruhiko Kuroda said at an international seminar on the global crisis response in Seoul.

As the global economic crisis brought about a severe dollar liquidity crunch in emerging countries, many governments had tried to accumulate dollar reserves as a safeguard, he said.

But considering the risks of the reserve currency, a combination of regional and global liquidity support systems could help avoid another currency crisis, he proposed.

The regional approach could be more realistic as it would take decades for special drawing rights, the IMF`s internal unit of account, to become a truly international currency, he said.

"A more realistic approach is to develop a multiple reserve currency system," he said.



Korea`s top financial policymaker agreed on the need for a mechanism to stabilize foreign exchange markets in emerging markets.

"Without adequate systemic improvements, emerging market countries will be forced to hold larger foreign reserves to prevent another financial crisis," Financial Services Commission Chairman Chin Dong-soo said in an opening speech for the seminar.

"Then, they could seek to increase exports by deliberately weakening their currencies, resorting to protectionist measures. This would aggravate global imbalances," Chin said.

The call comes as Asia`s emerging economies, leading the recovery from the global slowdown, seek a greater role in the new global financial order that is shaping up as a result of the crisis.

Korea will host the G20 Summit next year and, as a chair and host, it is hoping to play a role in helping bridge regional and global efforts to reform the financial architecture.

Chin said Asian countries must speak out on issues such as exchange rates and accounting standards in order to make a fairer financial structure for them.

The absence of an effective preventive method for Korea to minimize temporary deterioration in asset soundness by extreme foreign exchange fluctuation and other external shocks led to a higher debt level for shipbuilders and a deterioration of capital adequacy ratios for Korean banks. Adopting some accounting standards would even penalize Korea`s sovereign rating, he explained.

"Such issues are obviously not seen as important for those countries using the dollar as their settlement currency," he said.

The ADB, in its economic outlook update published last week, projected that the region`s growth will be 3.9 percent this year and will reach 6.4 percent next year.

Advanced economies will likely contract by an average 3.7 percent this year, according to the IMF`s projection. Their growth next year will be around 1 percent.

(milaya@heraldm.com)



By Lee Sun-young & news reports