PRC Scholar: Don't Let US Shaft Asia Anymore

♠ Posted by Emmanuel in , at 2/04/2010 12:25:00 AM
Let us turn our attention to Southeast Asia with this post to have some semblance of regional balance. I've been a bit remiss in not sharing the output here at LSE IDEAS concerning ASEAN economic integration. While I hope to bring you details of my ongoing work in the near future, here is some of what we already have. In April of 2009, the Southeast Asia International Affairs Programme held a workshop in Kuala Lumpur Malaysia on economic integration. Among the distinguished invitees were ASEAN's Secretary General Surin Pitsuwan as well as Professor Shaobang Kang of the Central Party School in China. The School is widely known as the training ground for Communist Party officials. Hence, Professor Kang's opinions will undoubtedly be informed by current policy discussions.

What it remarkable about his contribution to the workshop is him portraying ASEAN as the hub of future regional economic integration. ASEAN's principal advantage in this respect is that it doesn't have any designs on becoming the regional hegemon--nor does it have the capacity to become one. In all likelihood, ASEAN is well aware of this fact and can act as the belle of the Southeast Asian ball, courted as it is by not only China but also the US and Japan before it. There has already been much discussion of a dollar alternative emanating out of Beijing. Here, Professor Kang provides a more detailed outline of a possible alternative in the "Asi"--our putative counterpart to the "Euro" that centres on ASEAN. While this may still be pie in the sky at the moment, it nonetheless signals China's intentions towards attracting Southeast Asian support by making an issue of perceived American abuse of the international monetary system. Needless to say, China will have to do a lot of heavy lifting for it to become a regional reality.

I suggest that you go over the entire report from the workshop if you're really interested in ASEAN economic integration. Former US Treasury Secretary John Connally once said in relation to America's unique place in the international monetary system: "My basic approach is that foreigners are out to screw us. Our job is to screw them first." It sounds fairly zero-sum-ish but it still holds as the US appears to have no scruples in devaluing its debts at the current time. What follows below, though, are Professor Kang's suggestions to turn matters around. In so many words, it's "Don't let the Yanks shaft you like they're shafting us."


1) Enlarge financial and monetary cooperation between China and ASEAN.

Since China became a full dialogue partner of ASEAN in 1998, their relationship has been running well, and much dialogue and cooperation regimes between China and ASEAN have already been set up. Particularly, in 2001 both sides decided to set up the China-ASEAN Free Trade Area within 10 years and this programme is being carried out.

Therefore, there is a great foundation and arrangement system for economic integration of China and ASEAN. Based on this, both sides should strengthen financial and monetary cooperation. For example, they could set up some leader's meetings for their central banks and big commercial banks. China’s government decided to open 5 cities for RMB clearing pilot cross-border trade in Shanghai, Guangzhou, Zhuhai, Shengzheng, Dongguan. ASEAN could discuss the RMB clearing issue with China, to decide how to operate RMB clearing for trading purposes between China and ASEAN in some Chinese cities such as Nanning and Kunming. [Note that this is already happening on a limited basis.]

2) Improve fnancial and monetary cooperation among ASEAN, China, Japan and South Korea, and create the “Asian Dollar” or “Asi” in East Asia.

Asia is getting more and more important in the current financial world. Today, current international foreign exchanges reserves are up to $7 trillion, and Asia holds more than 70% of the amount of international foreign reserves. On the other hand, the international financial is still dominated by the US and Europe, and the international monetary system still goes by the US dollar standard. Those two factors threaten Asia’s foreign exchange reserve security, so it is necessary to reform the international financial, monetary and currency system. In addition, the financial crisis provides Asia opportunities to improve their cooperation and to lead international financial system reformation.

With ASEAN at the centre, Asia’s financial and monetary cooperation has already made some basic progress. On May 2000, ASEAN, China, Japan and South Korea (10+3) agreed to sign “Chiang Mai Agreement”. On June 2005, the Executives’ Meeting of East Asia-Pacifc Central Banks (EMEAP) announced that the Asian Bond Fund was formally activated by the central banks of 11 governments. On April 18th 2009, China’s Premier Wen Jiabao at Boao Asia Forum announced that China plans to establish a $10 billion China-ASEAN investment cooperation fund to promote infrastructure that connects it to ASEAN nations.

Recently, China’s central bank governor, Mr. Zhou Xiaochuan suggested the creation of a new international reserve currency to take place of US dollar. The new international reserve currency is a super-sovereign reserve currency and keeps stable valuation in the long term. His suggestion was supported by many leaders from developing countries and international organizations. The issue will be also discussed on the G20 New York summit on September 2009.

In my opinion, regarding the above system, ASEAN, China, Japan, and South Korea could firstly discuss the creating of an Eastern Asia super-sovereign reserve currency so that we could make realisation of an official currency of East Asian nations, the “Asian Dollar” or “Asi” possible. The purpose of “Asi” is to keep its value stable in the long term [take that, ever-devaluing US dollar].

The path to the creation of “Asi” could also benefit from the experience of creating the Euro. As a first step, it could be used in the trade clearing among the ten members of ASEAN, China, Japan, and South Korea. Second, it could be expanded into the trade clearing among the other Asian nations. The third step would be for it to become an international currency with stable value in the long term.

Collectively, these measure would improve Asia’s economic integration through Asia’s financial cooperation and the creation of Asian super-sovereign reserve currency “Asi”.