Asian currency regime, East Asia integration worth considering: Donald Tsang
By Ng Baoying, Channel NewsAsia | Posted: 16 November 2009 2032 hrs

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SINGAPORE: The prospect of an Asian currency regime as one of the building blocks of the global currency system may need to be explored in the future, said Hong Kong's Chief Executive Donald Tsang.

The Hong Kong leader was speaking at a public lecture organised by the Singapore Management University. He said Asian economies must not be complacent and must learn from the current global financial crisis.

Asia has been more resilient in the current global financial crisis due to the lessons learnt from the previous one in 1997. But according to Hong Kong's chief executive, there is no room for complacency.

He said: "A decade ago, we dug deep to look at ourselves - warts and all - to examine what went wrong to make sure we didn't make the same mistakes again.

"That's what protected us from systemic failure during this current maelstrom. And that is what we need to do again now because already we are starting to see alarming trends that could once again put Asia at the risk of liquidity flush and asset market bubbles."

He noted that these trends include loose monetary policies which have led to carry trades and leveraged capital flows.

With Asia seen leading the world out of recession and growing in importance on the global stage, the Hong Kong leader said financial integration will be key. This will help reduce the vulnerability to external shocks and the over-reliance on Western markets.

Going forward, he suggested that an Asian currency regime, similar to the Euro, could be established.

He said: "Some time in the future we may need to look at the prospect of establishing an Asian currency regime as one of the building blocks of the global currency system.

"Just as the Euro took years, Asian financial and monetary integration will take years, if not decades. A pre-condition for such integration must be deeper intra-regional financial co-operation.

"Only by planning and strategising now about the best way to tackle large volatile capital flows can we smoothly integrate major Asian currencies into the regional and global financial systems."

He added that as leading financial centres in the region, Hong Kong and Singapore both have a role to play, by pushing for more open markets. More access for business and a greater alignment of rules and regulations.

The Hong Kong leader said: "Much deeper and broader-based financial integration in East Asia is important for a number of reasons. It will reduce the region's vulnerability to external shocks and capital withdrawal.

"It will help us and the world to better absorb volatility. It will help us develop our capital markets which will reduce the over-reliance on banks. And it will broaden the world's financial system by reducing the over-reliance on US and European markets.

"The right way forward is to build what is non-controversial - Asian financial infrastructure based on global best practices and standards. For example, the regional credit rating agencies have to be upgraded and regulated according to global standards to help deepen our fixed income and credit markets." - CNA/vm