CaymanNet Business Wednesday
Time forsingle Asian currency?
By JONG-HEON LEE,
UPI Business Correspondent
SEOUL, South Korea, (UPI) -- Alarmed bya rapid surge in the won against the U.S. dollar, South Koreaneconomists are calling on their country to make aggressive effortsto create a common currency in Asia, similar to the euro, to preventfinancial turmoil.
South Korea has currency swap deals withseveral Asian neighbors aimed at heading off currency fluctuations,but economists here say these arrangements are not enough. Asiancountries remain exposed to the risk of a rapid drop in the dollar,which could jeopardize the region's economic recovery prospects,they say.
"A more fundamental measure is neededto avoid the fallout from the U.S. and other overseas markets,"said Choi Gong-pil, a researcher at the Korea Institute of Finance."That is the establishment of an independent regional capitalmarket in Asia and its single currency," he said.
"Total foreign exchange reserves offour major Asian countries -- South Korea, Japan, China and Taiwan-- reach $1 trillion, and they have enough strong economic foundationto create their own capital market," Choi said. South Korea'sforeign currency reserves rose to a record $112.4 billion as ofthe end of June, which ranks fourth in the world, the centralBank of Korea said.
South Korea has established a web of centralbank swap agreements to avoid a repeat of a regionwide crisis.It has currency swap deals with Japan ($2 billion), China ($2billion) and Thailand ($1 billion). The Bank of Korea is alsoin talks with counterparts from the Philippines and Malaysia.
The deals represent efforts by Asian countries,which suffered an unprecedented financial meltdown in 1997-1998,which helped them strengthen financial cooperation in the region.Economists say one of the main causes of the Asian financial crisiswas the dwindling supply of U.S. dollar reserves held by the Asiancountries.
But in the regional swap network, a countrywhich faces speculative attacks on its currency, like the Thaibaht in 1997, or shortage of funds during a balance of paymentscrisis, could borrow the dollars from its partners.
The arrangement is part of the Chiang MaiInitiative, which aims to forge closer ties by creating a networkof currency swaps among the Association of Southeast Asian Nationsplus Japan, China and South Korea. Japan, a driving force behindthe CMI, with the world's biggest foreign exchange reserves, hasbilateral swap agreements with South Korea, Thailand, the Philippinesand Malaysia.
In another move to cope with potential financialturmoil, the Asian Development Bank is working on developing anearly crisis warning system. South Korea, Indonesia and severalother Asian nations are also considering launching a new systemto better track money laundering, Seoul's Finance Ministry said.South Korea will share information on money laundering with otherAsian countries, it said.
"But such measures can hardly bringabout fundamental resolution of won-dollar exchange rate fluctuationrisk," said Ryu Jong-il, an economist at the Korea DevelopmentInstitute, a government think tank.
"Establishing a common Asian currencyis necessary to regional economic cooperation and financial stability,"he said. "The introduction of a common currency basket couldbe the very first step toward this goal."
The calls for a common Asian currency cameas South Korea is facing a major challenge to its export-dependenteconomy.
The dollar fell to a 20-month low againstthe won Wednesday, which triggered intervention by the Bank ofKorea for fear that a strong won will take the steam out of theSouth Korean recovery.
The greenback plunged below 1,200 won Mondayin a near-panic response to remarks by Lee Ki-ho, a senior economicadviser to President Kim Dae-jung, that the foreign exchange ratewould be left to market principles. The won further rose Thursday,closing at 1,179.5 against the dollar.
During the past three months, the Koreancurrency gained about 12 percent against the U.S. dollar. Economistsand officials say that the surge in the value of the won is inevitablebecause the rise comes from the weakening U.S. dollar caused bymarket failure in the United States in the aftermath of the Enronand WorldCom scandals and other financial irregularities there.
South Korea's new government policy couldfurther support capital flows into the country, which will leadto the stronger won. The Finance and Economy Ministry said Mondaythat it would provide tax incentives to lure more foreign investmentin a bid to boost its credentials as an Asian business hub.
Facing growing concerns that the risingwon would hurt South Korea's lifeblood of exports and stifleseconomic recovery, the government has decided to intervene inthe foreign exchange market by selling foreign exchange stabilizationbonds in a bid to secure more local currency for dollar purchases.
"The government is concerned aboutthe effect the stronger won will have on the economy," saidKwon Tae-shin, international finance bureau chief at the Ministryof Finance and Economy.
But many currency dealers say the governmentmeasures can hardly stop the won's upward march. "The governmentis unlikely to take steps to force a reversal in the current trend,"said Lee Sung-kwon of Good Morning Securities.
The Korea International Trade Associationsaid a 10 percent rise in the value of the won to the dollar tendsto cut South Korea's exports by $2.2 billion and increase importsby $7.94 billion, resulting in a trade balance setback of $10.14billion annually.
"The simultaneous strengthening ofthe Japanese yen against the dollar is a great comfort to Koreanexporters, but the won's surge is feared to deal a serious blowto Korea's trade balance," it said.
A senior Finance Ministry official saidhe is uncomfortable with the rapid pace of the won's appreciationbecause the country's exports have only recently started to recoverafter falling for 13 consecutive months through March this year.
Hyundai Motor Co. said it would be inevitable to raise overseasprices of vehicles.
The state-run Korea Institute of EconomicPolicy estimated the appropriate level of the won to the dollarat 1,235.
UAETo Stand Firm On Foreign Banks
by Lorys Charalambous,
Tax-News.com, Cyprus
Speaking to the Gulf News service this week, the UAE's Directorof WTO Affairs at the Ministry of Economy and Commerce, SaeedAl Nusabi explained that the jurisdiction will be sticking toits guns over allowing more foreign banks to establish in theregion, arguing that the United Arab Emirates is already an 'overbanked'country.
Mr Nusabi told Gulf News that within thecontext of World Trade Organisation negotiations, the jurisdictionhas been granted exemptions in certain areas (such as allowingmore foreign banks into the region), but that key WTO membersare now demanding their removal.
He told the news service that he would bestanding firm at the next round of WTO talks, which begin laterthis month.
'We will make this clear at the July 18-19 negotiations, whichwe expect to drag on until 2005. Our stand is that we need anexemption in this sector for the time being because the bankingsector in the UAE is already too large and there is no need fornew banks,' the WTO negotiator explained, adding that:
'As for the liberalisation of the bankingservices, we already have one of the most liberal systems...butas I said, the UAE cannot afford having any more foreign banksnow.'