Asian finance chiefs to meet on crisis-averting currency swaps

by Yasushi Azuma

Kyodo News

Finance ministers from the 10-member Association of Southeast Asian Nations plus Japan, China and South Korea will gather Saturday in Kyoto to discuss ways to enhance financial cooperation, including the launch of a multilateral currency swap deal.

During the one-day meeting in the ancient capital, the finance ministers are expected to agree on a plan for pooling funds from their foreign reserves as part of efforts to convert the current regional network of bilateral currency swaps worth nearly $80 billion into a multilateral framework, Japanese officials said.

The current web of bilateral currency swap deals, known as the Chiang Mai Initiative, was introduced in 2000 to prevent a recurrence of the 1997-1998 Asian financial crisis.

Under the initiative, central banks from participating countries are allowed to swap foreign-exchange reserves to fight speculative attacks on their currencies.

The 13 Asian nations agreed last May at a meeting of their finance ministers in Hyderabad, India, to set up a task force to study the feasibility of upgrading the current network of bilateral currency swaps into a multilateral framework to better protect the fast-growing Asian economy from currency upheavals, the officials said.

The envisioned multilateral currency swap deal will enable a troubled country to ensure necessary liquidity in a prompt manner in the event of a crisis, the officials said.

Some critics say the envisioned plan could overlap with the functions of the International Monetary Fund, the Washington-based lender tasked with rescuing economies from financial crises.

But Hiroshi Watanabe, vice finance minister for international affairs, brushed aside such concern, saying the multilateral framework “would more likely supplement the functions of the IMF rather than overlap it.”

Japan is allowed to allocate part of its foreign reserves to such pooling under existing laws, Watanabe said last week.

The meeting will be held on the sidelines of a two-day annual meeting of the Asian Development Bank on Sunday.