Tuesday, May 6, 2008

China/Japan/Korea and ASEAN set up emergency currency reserve

Not specifically about gold but very interesting talking about the new reserve the Asian nations are using to tackle another financial crisis and how they hope it will supplant the IMF in Asia.

Chinese, Japanese, and South Korean leaders prepare a $80 billion joint reserve to defend against an Asian financial Crisis


Asia Times (Chinese)

May 6, 2008 issue

By Luo Shaolan


Translated by China Gold News (Blog)


The finance ministers of China, Japan, and South Korea along with the those of 10 ASEAN countries agreed on May 4 to establish an $80 billion joint foreign exchange reserve fund to assist the participating countries in the event of a financial crisis. In establishing the "Asian Monetary Fund", the reserve requirements are similar to the International Monetary Fund's reserve and will seriously weaken the role of the IMF in stabilizing international finance.


The finance ministers of each of the countries agreed that China, Japan, and South Korea would contribute 80% of the funds while the other 20% would come from the 10 contributing ASEAN members. Additionally, the thirteen countries will have about one year to determine how the organizations’ structure and activities will be set up. After this point, the members can being using the reserves.


The origin of the Asian Monetary Fund was in the 1997 Asian Financial Crisis and its widescale losses among many countries currencies. At that time, the IMF’s help was inadequate and its conditions were extremely exacting. Afterwards, the nations of East Asia started to search for areas of cooperation to prevent another crisis and protect finance. As early as late 1997, Japan then suggested establishing a regional monetary fund but at that time encountered the heated opposition of the United States. Afterwards, in 2000 the 13 nations finally signed a mutual framework for creating a regional monetary exchange “Agreement of Intention”. On the basis of this agreement, the thirteen national again agreed in 2007 to use sections of their foreign currency reserves to establish a multinational fund for use in an emergency situation but in the end did not decide the fund’s framework.


This time, the finance ministers agreed for the monetary fund’s base of $80 billion in order to protect financial stability for the thirteen member countries. This fund it can be said is very adequate given that the IMF’s current reserve is about $200 billion but for 184 member nationals with a global scope.


The basic use of these $80 billion of reserves is for necessary use as a direct attack against short term investment crises, maintaining Asia’s finance in favorable conditions, promoting the reform of monetary institutions, and maintaining Asia’s monetary stability and liquidity. It can be pointed out, given the current derivatives disaster regional foreign exchange systems will become more harmonized over the long-term. Due to China being particularly interested in establishing an Asian debt securities market, the region is extremely likely to see its own debt insurance, rating, and related auxiliary institutions.


Japan advises that each country’s foreign exchange should focus on a currency basket of yen and euros and at the same time emphasizes that if an Asian Monetary Union is uncapable of being created in the short-term, they should think of establishing multiple smaller currency areas. On another hand, South Korea put forward the idea of an “Asian Currency Unit” which would not be a standalone currency but a type of currency based on the thirteen country’s currency values, GDP, and trade and would be a valuable virtual currency system. This would allow each country’s central bank to conveniently balance out currency fluctuations without causing undue harm.


At the same time working for the stability of Asian currencies, China is also focusing on establishing an Asian debt security market. It recommends founding Asia’s own debt insurance and rating agencies. Although, East Asian countries nations hold the world’s largest reserves, Asian debt is still not rated particularly high on international markets. China believes on one hand encouraging debt for large enterprises and encouraging transnational projects, and on the other hand establishing Asian debt insurance and ratings agencies to attract the interest of American and European investors as well as promoting the sales of Asian debt.


Although the three nations of China, Japan, and South Korea do not see eye to eye on the functions of the Asian Monetary Fund, they are brought together by the common cause of seeing the IMF as relatively inadequate. The IMF can be understood as the institution of the wealthy American and European nations to assist poor nations in establishing monetary stability. In the past several decades, it has had a large influence on international finance. It emphasizes protecting western “free market economy” modes of thinking. Towards the recipient nations are placed many sorts of demands, for example completely liberalizing the economy, large scale cuts in government expenditures, and even high interest rates. These sorts of measures are frequently criticized as being geared towards expanding the trade of western nations and are a poison to the recipient nations’ economies.


Following the global economies shifts of power, the IMF is no longer as influential. Past economic crisis countries such as Brazil, Argentina, and Russia already have sufficient capital reserves and Asia has even more unmatched foreign exchange reserves. The past year has presented many problems for the IMF which encountered its first operating loss. As the modern Asian nations increase their foreign reserves, it increasingly relegates the IMF to a relatively useless position.



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