Two Frontiers of East Asian Monetary
Cooperation: ACU and APU
Faculty of Economics, OITA UNIVERSITY, JAPAN
• Two Frontiers
ACU: Asian Currency Unit
APU: Asian Payment Union
Making difference between finance and money
Finance: lending and borrowing
• Three Functions of Money;
• Means of Payment
• Unit of Account
• Store of Value
II Asian Currency Unit; its possibility and
i. Background of ACU
Overshooting YEN/Dollar rate in the middle of 1990s
・April 1995, ￥ appreciated to ￥80
Summer to Autumn 1997; Asian Crisis
Summer to Autumn 1998
The Long-Term Capital Management in bankruptcy
YEN CARRY TRADE
・Crisis-hit countries→under the de facto US dollar
fixed Exchange Rate System
Appreciating ＄=Appreciating Thai Baht
=Appreciating Malaysian Ringgit
=Appreciating Korean Won
Loosing Trade Competitiveness in the World Market
Fixed Exchange Rate System or Floating
Or Alternative Way→ACU
ii. Good Point of ACU
ACU as Basket Currency; $（60％）, EURO（20％）,
Korean Won’s exchange rate pegging to ACU
$ appreciation against \ by 50%→only 30% reflected
in calculation of ACU value
$ appreciation against \ by 50%= \ depreciation
against $ by 33.3% (ex. \1＝$1/100→ \1＝
$1/150)→6.66％ reflected in calculation of ACU
+30% up, 6.66% down→only 23.34％ up in ACU
If $ appreciation against \ by 10%, ・・・？
iii. If Adopting ACU all over East Asia
・Chinese government announced the renminbi
appreciation by 2.1% on July 21st, 2005; changing
exchange rate system from the US dollar fixed
exchange rate system to managed floating system
in reference with Basket Currency System.
・Malaysia did on the same day.
・Singapore has a long experience of basket
If we, East Asia, adopt Basket Currency System,
composed of ASEAN+3 countries’ currency;
Is it a big step toward single currency as EURO?
iv. To Overcome Defects of ACU
a. ACU as Basket Currency is artificial currency
On the other, actual foreign exchange transaction is
denominated in concrete national currency, $!
Can we give up $?
b. ACU survive international financial transaction?
Bipolar View ( Two Corner Solutions); independent
monetary policy, stable exchange rate, and
international mobility can not be compatible all at
Intermediate Exchange Rate Regime; ACU
• Bipolar View’s diagnosis and prescription of the
crisis; misconducted policy mix; floating exchange
rate to keep independent monetary policy
Currency Speculation getting hard after moving to
floating exchange rate
Bipolar View is reliable?
Think the thesis in a reversed way!
Once international capital movement can be
regulated, we can have both stable exchange rate
and independent monetary policy.
・Chinese Renminbi case; the US demands Beijing to
widening the fluctuating band of renminbi.
• Isn’t it the way for the floating?
Bipolar View; the floating leads to free
international capital movement.
China may be put in financial turmoil, and
vulnerable to currency speculation as the crisis?
China will be able to sustain itself?
The neighboring countries can support China?
・ACU as basket currency is viable of currency
III Asian Payment Union: Ground for ACU
i. Idea of APU
APU; established in 1975, by ESCAP, The UN;
member countries (India, Pakistan, Srilanka,
Bangladesh, Myanmar, etc)
Mutual Clearing Union Network
Central Bank opens its clearing account at the
counterpart each other.
Asian Monetary Union: I unit = $1
What can we learn from APU?
ii. Offsetting Mechanism in Clearing Trade Balance
Korean International Trade of 2005
Total $2,318 million in surplus with the world
With China, $23, 267 million in surplus
With Japan, $24,376 million in deficit
Subtotal, $1,109 million in deficit
Korea can offset its trade deficit with Japan by its
trade surplus with China by 95.5%, without money.
Korean trade with Taiwan in surplus $2,813 million
Korean trade with ASEAN in surplus $858 million
Total Korean trade with East Asia in surplus $2,562
million/Total gross amount of its trade with East
Asia $51.3 billion ×100(%)≒5% →95％ Offset!
China;88%, Taiwan; 94%, ASEAN; 85%←Offset!
Japan; 62.6%, unilateral trade in surplus with East
Asia←FTA effect in future
The weight of East Asia in international trade
direction of each country is getting growing.
Offsetting Mechanism can work!
ACU must be grounded on this reality.
Offsetting the debt with the credit→
buying and selling foreign exchange in balance→
the exchange rate pegging to ACU is stabilized.
iii. Financing Temporary Liquidity Shortage
The debtor country with the regional trade
Temporary Shortage of Short-Term Liquidity
Newly Established Regional but International
The debtor country in the regional trade, on the
other the creditor country in it.
This is one of current functions of IMF.
We can take over this function for ourselves.
iv. ACU as Unit of Account and as Store of Value
Currency Accordance; denomination currency for
the short-term finance must be the same with
denomination currency for the regional trade.
Central Bank in the region opens its clearing
account at the counterpart each other.
The clearing account can work as foreign
reserve←store of value
v. How to deal with the US dollar
The US demands East Asian Currencies to
appreciating against Dollar.→Depreciating Dollar
against our currencies.
But as far as we continue to recycle our trade
earnings with the US in the form of the Dollar
denominated financial asset, the US demand can
not be realized.
Okay, let’s make their dream come true!
We should conduct our policy unanimously→ Selling
Dollar, Buying Gold! →Gold price denominated in
Dollar gets higher=Dollar devalues against Gold.
A portion of Gold must be transferred to our
common financial entity to back our ACU
ACU backed by Gold
If Gold price denominated in Dollar gets too much
higher, we can stop converting Dollar into Gold/
Or, we can convert Gold in Dollar in the market.
Why can we do this?
We have trade in surplus with the US.
We have foreign reserves denominated in Dollar.
We can destine the fate of Dollar, only if we can co-
operate monetary policy.
With this Gold policy, the relative exchange rate in
this region is not changed.
We don’t need beggar-thy-neighbor policy!
International Clearing Union
John M. Keynes
Thank you for listening!