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Should Thailand support Asian benchmark currency unit ?

An Asian currency unit should be used as the benchmark currency of the countries in the region if they want to efficiently cope with currency exchange fluctuation, according to former deputy prime minister and finance minister Pridiyathorn Devakula.

Aishwarya Gupta

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An Asian currency unit should be used as the benchmark currency of the countries in the region if they want to efficiently cope with currency exchange fluctuation, according to former deputy prime minister and finance minister Pridiyathorn Devakula.

Thailand should study what China achieved in controlling the yuan by exchange rate targeting if it wants to control the baht’s movement in the long run.

He said it was unwise to allow the baht to float amid capital flows into Asia because it could make the currency fluctuate heavily.

The adoption of an Asian currency unit as the benchmark currency of the countries in the region is another efficient approach to curbing the currency exchange volatility because it could make currencies in Asia move in the same direction.

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An Asian currency unit should be used as the benchmark currency of the countries in the region if they want to efficiently cope with currency exchange fluctuation, according to former deputy prime minister and finance minister Pridiyathorn Devakula.

Fundamentals remain strong and Thailand continues to be an attractive place to do business. The government’s GDP growth forecast for 2010 was recently increased to 6.5%-7.5% on the back of continued strong export growth and sustained domestic demand.

The currency and the stock market are at all-time highs. This strong rebound is again proof of the resilience of the Thai economy to the political uncertainty.

The Chiang Mai Initiative (CMI) a step towards stability

CMI is a multilateral currency swap arrangement among the ten members of the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China (including Hong Kong), Japan, and South Korea. It draws from a foreign exchange reserves pool worth US$120 billion and was launched on 24 March 2010.

The initiative began as a series of bilateral swap arrangements after the ASEAN Plus Three countries met on 6 May 2000 in Chiang Mai, Thailand, at an annual meeting of the Asian Development Bank. After 1997 Asian Financial Crisis, member countries started this initiative to manage regional short-term liquidity problems and to facilitate the work of other international financial arrangements and organizations likeInternational Monetary Fund.

In May 2007, at the 10th meeting of ASEAN+3 Finance Ministers the CMI further progress was agreed upon.

In February 2009, ASEAN+3 agreed to expand the fund to $120 billion up from the original level of $78 billion proposed in 2008.

During the April 2009 meeting of ASEAN finance ministers in Pattaya, Thailand, the individual contributions to be made by each member state toward the reserves pool were announced. Each of the six original ASEAN members—Indonesia, Malaysia, Singapore, the Philippines, and Thailand—agreed to contribute US$4.77 billion, while each of the remaining four members would contribute between US$30 million and US$1 billion.

The ten countries were scheduled to meet their partners following the finance ministers’ meeting, but the summit’s cancellation due to the Thai political crisis delayed the launch of the multilateral agreement to a later date.When leaders of the thirteen countries finally met in Bali in May, they finalized the individual contributions of China, Japan, and South Korea.This summit also added Hong Kong as a new participant, whose contribution was added to that of China though Hong Kong remained “a monetary administration on its own”. Its participation raised China’s total contribution to US$38.4 billion, equal to that of Japan, and South Korea, which agreed to contribute US$19.2 billion.

Back to fixed rates ?

Thailand should study what China achieved in controlling the yuan by exchange rate targeting if it wants to control the baht’s movement in the long run.

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship.

To prevent currency values collapsing, these countries’ governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the fixed exchange rate with foreign reserves.

On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudhsaid that he would not devalue the baht. This was the spark that ignited the Asian financial crisis as the Thai government failed to defend the baht, which was pegged to the basket of currencies, where U.S. dollar was the main component, against international speculators. Thailand’s booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the US dollar in January 1998. The Thai stock market dropped 75%.

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Ex-BoT chief backs Asian currency regime adoption

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