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China and Japan are both big producers andconsumers. Therefore, all of East Asia including China and Japan will provideinexhaustible power to world economic development in the future.
Reporter: Yuming Chiko, Yan Qin
About past: why do we need “Asian currency”?
The scene that countries resorted to IMF for help with high price during 1997 Asian financial crisis still triggers a lingering fear. Since then, Asian countries have been searching for a cooperation mechanism that can protect against risk, and they hope to gain capital support from neighboring countries when crisis comes so that native currency won’t suffer uncontrollable devaluation.
On May, 2000, finance ministers of ten members of ASEAN and China, Japan, and South Korea after financial crisis (Chiang Mai Initiative 10 +3) sign initiative of building regional currency exchange network in Chiang Mai, Thailand (Chiang Mai Initiative). This meeting expanded original currency exchange mechanism within ASEAN to China, Japan and South Korea so that other countries can provide support when certain members suffer short-term capital difficulty and thus try to avoid financial crisis. After global financial crisis in 2008, the Chiang Mai Initiative became a multilateral initiative, from bilateral currency exchange to multilateral exchange, and an AMRO is set up as supervision unit according to contribution rate of members.
In fact, concept of regional mutual currency unit has long been discussed within east Asia, and it is called ACU for short. In meeting for financial ministers, they put forward reason to build regional currency, and then they called it Asian Currency Unit, while Korean scholars used another name called RCU. Now Ogawa Eiji combined all these ideas together, and promotes a regional mutual currency -- AMU in East Asia. Professor Ogawa chooses ASEAN 10 countries with China, Japan and South Korea to form “Asian Monetary Unit” in his own model, and through comparative research of statistics from 2000 to 2007, he found that during this period, such regional currency is more stable than US dollar, yen or Euro.
About Now: the path to building an “Asian currency” is arduous
For professor Ogawa, though we do need “Asian currency”, it cannot be smoothly promoted in a short time. “If you ask me the time when ‘Asian currency’ real comes, i can only that it will take a long, long time.”
Professor Ogawa thinks that Asian countries differ a lot in economic development speed and level. China’s development speed is very fast, and may equal Japan after three to five years, yet South Korea and other ASEAN countries need certain conditions in order to accelerate. Convergence of Asian macro economy needs a long time, and at that time, the opportunity for “Asian currency” may really come.
Professor Ogawa also provides two realization ways for AMU: first through supervision and the second through trade between private departments. The former is easier to do, because AMU can be achieved as long as government makes decision. It takes longer time if we try to introduce AMU through the latter, yet research shows that realization of AMU needs to do both, and in that case AMU can immediately start supervision of exchange rate policy in order to find out deviation of exchange rate and excess fluctuation within region.
For the trade between private departments, we need to first build a financial product package currency as basic value to trade in some markets. We need to also consider which currencies are included in AMU, especially these financial products, not only current accounts, but also capita accounts can be exchanged, and it should be able to be achieved by all component accounts.
AMU for supervision can test deviation of native currency from AMU in short time, and in the long run, we can see more change in exchange rate of AMU and currency package. As to AMU based on CMIM as standard, we can check which currencies are overvalued and which are undervalued through comparison of every ASEAN currency with AMU.
From the perspective of trade, AMU can be used as currency for current account and capital account trade, and the stability of its inner value equals stability of foreign exchange rate within region, and moreover, it can be paid for governmental cost. AMU can be used as tool in private trade including pricing of current and capital account, and it can be used for large amount trade, not matter under current account or capital account.
However, all these should be based on good supervision of government. As to crisis in Euro zone, professor Ogawa thinks that government should take on main responsibility because of their laissez-faire attitude.
“Economic crisis in Euro zone is caused by lack of governmental supervision, yet our AMU will develop under supervision of governments.” said professor Ogawa, “if governments and currency administrations in Euro zone can effectively supervise the condition, it will definitely not be the chaos.”
About future: RMB cannot become core currency of AMU
Obstacle of “Asian currency” may not only lie in macroeconomic discord. Establishment of Euro is based on members transferring currency sovereignty, while it is hard to be achieved in current Asian political map. Scholars think that a core currency is better for birth and promotion of Asian currency unit, and have proposed that we take RMB as the core currency so that AMU can be more practicable. Ogawa Eiji has also given RMB 36% based on statistics of GDP, export and import, foreign exchange, etc. in his concept of Asian currency unit in 2010 Shanghai Forum. However, Ogawa Eiji still does not think that RMB enjoys characteristics of being the core currency.
“Fluctuation of RMB is so big, and the exchange rate is also not stable, yet one condition to establish AMU is that we need stable value”, professor Ogawa clearly showed his disagreement with RMB as the core currency, “what is more important is that RMB does not have convertibility. Component currency convertibility in free capital account is an important component, and convertibility is also a necessary condition to bind and split AMU as well as precondition of risk hedging. Therefore, I don’t think RMB has the ability to become core currency.”
At the same time, establishment of AMU requires government to open market and loosen restriction. Professor Ogawa also hope that Chinese government can really make this huge market free. “Currently, Chinese market has not been open yet, and most open trades are practiced in Hongkong, yet even in Hongkong, it is hard to totally enter open mainland market, and therefore, we hope that Chinese government open capital market including bond market. Chinese government should open capital account, and loosen control on capital, no matter it is trade under capital account or liberalization of capital account.” said professor Ogawa.
As to function of East Asian economic ring on global economy in future 5 years, professor Ogawa is very confident. In his opinion, even for now, East Asia has already been seen as engine of global economy which means that the region enjoys strong production power. China and Japan are both big production countries as well as consumption countries, and therefore, the whole East Asia including China and Japan will provide inexhaustible power to world economic development in the future.
Introduction of Ogawa Eiji:
Professor of business school (international finance) in graduate college, Hitotsubashi University, Japan, guest researcher of International Monetary Foundation Bureau; research project (2011-2015): study of currency basket: study of east Asian financial cooperation and best currency basket in policy field (2006-2010)
