ADB plans to launch ACU by June to track E. Asia currencies+
(Japan Economic Newswire Via Thomson Dialog NewsEdge)SINGAPORE, March 21_(Kyodo) _ The Asian Development Bank plans to launch an Asian Currency Unit, a weighted index of a basket of Asian currencies by the first half of this year as a benchmark to monitor moves in the values of currencies in the region, according to senior bank officials.
"We hope to launch it earlier than June" said Masahiro Kawai, economic adviser to ADB President Haruhiko Kuroda and head of ADB's newly created office of regional economic integration.
It will be the first time for an international institution such as the ADB to create such an index for Asia.
The ACU takes its cue from the European Currency Unit or ECU, an artificial "basket" of currencies that was used by the member states of the European Union as their internal accounting unit.
The ECU was conceived in 1979 by the European Economic Community, the predecessor of the European Union, as a unit of account for the currency area called the European Monetary System and was also the precursor of the euro, which was introduced in 1999.
Kawai told Kyodo News that as many as 40 Asian countries are currently being considered for the index.
Initially, however, the bank plans to create an index of East Asian currencies encompassing only 15 economies: the 10 member countries of the Association of Southeast Asian Nations plus China, Japan, South Korea, Hong Kong and Taiwan. ASEAN members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
The index could be expanded later to include other countries such as India, Australia and New Zealand, Kawai said.
"The original idea was to focus on East Asia, but we are expanding the scope," he said.
The agency is currently consulting with governments in the region on its plans to create the index, which will gauge the performance of the basket of Asian currencies against other major currencies such as the U.S. dollar and the euro. The index will be posted on the ADB's website and updated daily.
The index will make it easier to monitor foreign exchange market developments in Asia and help promote exchange rate stabilization in the region, Kawai said.
"East Asian economies are now highly integrated through foreign trade, foreign direct investment and financial transactions, so obviously intra-regional exchange rate stability is quite useful and beneficial," Kawai said.
Analysts say that if the ACU is widely used by markets in the region, it could mark the first step toward the establishment of a common currency in the region.
It could facilitate the development of an Asian multicurrency bond market and a deepening of capital markets, which would help reduce exposure to external shocks.
The ADB, which is currently studying the creation of the index, is taking into account factors such as each economy's economic output, trade data and currency values in computing the index.
Analysts say it will be tough for the region to forge a common currency due mainly to political diversity and the reluctance of governments and central banks in the region to give up their sovereignty, but they hailed the ACU as a starting point.
Tomo Kinoshita, head of Asia economic research at Nomura Singapore Ltd., said "the establishment of the ACU will be a significant first step toward a common currency in Asia."