Launch of Asian currency unit held up by political bickering

By Victor Mallet in Hong Kong

Financial Times (FT.com)
Published: March 27 2006

Plans to launch an Asian Currency Unit (Acu) to help develop regional bond markets and promote monetary co-operation have been delayed by political and technical arguments over which currencies to include and how the weighting system would work, say people familiar with the project.

"There is agitation over which currencies are to be in the Acu," said one official at the Asian Development Bank, citing disagreements among Asian governments over the incorporation of the currencies of Taiwan - the island claimed by China - and of Hong Kong, Australia and New Zealand.

Haruhiko Kuroda, the ADB's Japanese president, strongly supports increased financial co-operation in Asia and an eventual monetary union. He had hoped to launch the Acu as early as this month but ADB officials now say the process is unlikely to be completed until after the bank's annual meeting in May.

Giovanni Capannelli, senior economist in the ADB's Office of Regional Economic Integration, said the name might even be changed to the softer "Asian Currency Index" to avoid giving the impression that the proposed unit was the equivalent of the European Currency Unit that foreshadowed the euro.

"There is no timetable yet. We are now in the process of consultations with the countries," Mr Capannelli said. "It seems like there are many more sensitivities than we thought with regard to the definition of weights."

In a recent interview at ADB's Manila headquarters, Mr Kuroda said there were disagreements about the Acu plan but refused to be drawn on the dispute between China and Taiwan.

He played down the significance of the project and differentiated it from the Ecu. "This is not an official kind of currency unit like the Ecu," he said. "It would just be an indicator of exchange rates, with no exchange market intervention and no settlement involved."

The ACU could, however, be a useful denominator for bond issues, Mr Kuroda said. In a speech at Harvard Business School in February, he said: "The ACU could also facilitate development of an Asian multi-currency bond market and a deepening of capital markets, which would help reduce exposure to external shocks."

The ACU will be based on the 10 members of the Association of South-East Asian Nations together with Japan, China and South Korea - a group known as Asean + 3 - which already have limited monetary co-operation.

But analysts say financial markets would not look kindly on a currency unit or index that included Cambodia and Brunei while ignoring more significant Asia-Pacific currencies such as the Hong Kong dollar.

Mr Capannelli said the ADB might calculate more than one index with different component currencies. The ADB has not yet decided whether to calculate weightings based on gross domestic product, trade flows or financial transactions, or a combination of such elements.

ADB officials say the initial purpose of the Acu will be to help monitor divergence between east Asian currencies and those of the rest of the world, as well as to analyse unusual moves by individual currencies - such as the Indonesian rupiah's "mini-crisis" last August.