Asian Currency Swap Fund to Guard Against Future Crises

A multilateral currency swap fund that upgrades the Chiang Mai Initiative of 2000 for South Korea, China and Japan plus ASEAN has been established to deal with any future dollar liquidity shortage. The initial amount in the pot will be US$120 billion.

The finance ministers and central bank governors of the participating countries formalized the establishment of the CMI joint fund on Dec. 24, said Chung Eun-bo of the Ministry of Strategy and Finance on Monday.

It will be launched 90 days later on March 24. Discussions started with a view to preparing Asian nations for any future financial crisis by themselves instead of relying only on international organizations such as the International Monetary Fund.

Participants at the ASEAN + 3 summit in Thailand on Oct. 24 pose for a group photo. From left, Chinese Premier Wen Jiabao, Thai Prime Minister Abhisit Vejjajiva, Japanese Prime Minister Yukio Hatoyama, Vietnamese Prime Minister Nguyen Tan Dung, and Burmese Prime Minister Thein Sein Participants at the ASEAN + 3 summit in Thailand on Oct. 24 pose for a group photo. From left, Chinese Premier Wen Jiabao, Thai Prime Minister Abhisit Vejjajiva, Japanese Prime Minister Yukio Hatoyama, Vietnamese Prime Minister Nguyen Tan Dung, and Burmese Prime Minister Thein Sein

The three Northeast Asian nations plus Thailand, Indonesia, Malaysia, the Philippines, and Singapore agreed in Chiang Mai, Thailand in 2000 to establish what was then a $78 billion multilateral currency swap scheme. The latest upgraded CMI now includes all 10 ASEAN members, adding Brunei, Burma, Cambodia, Laos and Vietnam. Hong Kong is also a member as part of China.

China and Japan will each contribute $38.4 billion or 32 percent of the total. Korea will provide $19.2 billion or 16 percent and ASEAN $24 billion or 20 percent. The maximum amount any participating country can borrow in a crisis will be decided based on the contribution ratio multiplied by a certain percentage. Korea can borrow up to $19.2 billion.

But although it is a joint fund, the 14 central banks of participating countries including Hong Kong will not deposit their share in advance but make their contribution whenever necessary. The fund thus takes the form of a currency swap scheme.

It is expected to be able to react quickly to any crisis as decisions can be made in a week if a member that is short of dollars asks for help. A currency swap normally matures in 90 days, but the maturity for the CMI fund can be extended seven times, up to 720 days.

Korea's economy accounts for a paltry 6.4 percent of the total foreign reserves and a mere 8.0 percent of GDP of the ASEAN plus three nations, but its 16 percent share in the fund gives it more clout. Whether the CMI currency fund heralds a kind of an Asian regional version of the IMF remains to be seen.

englishnews@chosun.com / Dec. 29, 2009 12:05 KST