A Sudden Worldwide Currency Revaluation is Imminent

A sudden worldwide currency revaluation is imminent

Iraq and the IMF
Updated July 27, 2009

The last Article IV Executive Board Consultation was on August 01, 2007. Listed below are items related to Iraq, in reverse chronological order (you can also view items by category).

John Rubino: A sudden worldwide currency revaluation is imminent

Wed, 2009-07-15

Daily Dispatches

July 15, 2009
Dear Friend:

In his new essay, "A Tremendous Secret," financial writer John A. Rubino, co-author with Gold Money's James Turk of "The Coming Collapse of the Dollar," foresees an imminent worldwide currency revaluation.

This revaluation, Rubino thinks, will correct the biggest financial imbalance of all, the ratio between the value of the world gold supply and the supply of fiat money.

Such a prospect is not quite a secret. You may remember that the British economist Peter Millar contemplated in great detail such a worldwide currency valuation.

Such revaluations, as Rubino notes, are not done gradually but overnight, so that no one can trade against them and so there is no chaotic escape from the new currency system after it is imposed.

A clue in support of Rubino's speculation may be found in the communique issued last week by the G8 conference in Italy, which said: "We will refrain from competitive devaluations of our currencies. ..."

French President calls for global talks on dollar’s role as world currency

Thursday July 9, 2009

L'AQUILA, Italy (AP) -- French President Nicolas Sarkozy called for a revamp of the global currency system, saying Thursday that the dollar's supremacy is outdated.

"We need to ask the question: shouldn't a world that is politically multi-polar correspond to a multi-monetary world economically?" he said in a news conference during a summit of world leaders in L'Aquila, Italy.

Sarkozy compared an overhaul of the global currency system to the enlargement of the Group of Eight structure to encompass fast-growing emerging economies, which were invited to join the Italian summit.

He said the supremacy of the dollar belongs to the post-Second World War era when America was the predominant world power both economically and politically.

"Even if it's a difficult topic, I hope that in the coming months we will talk about currencies and the international monetary system," he said. "There has to be a debate."

Leaders of rich and developing nations agreed not to resort to currency devaluation to gain a competitive advantage, but -- with the absence of the Chinese President Hu Jintao, who returned home to deal with violence in western Xinjiang -- the final statement didn't mention the dollar's status as the world's reserve currency.

"We will refrain from competitive devaluations of our currencies and promote a stable and well-functioning international monetary system," said the leaders of the G-8 industrialized nations, together with Brazil, China, India, Mexico, South Africa and Egypt.

One of the reasons often cited as to why the 1930s Great Depression lasted so long was that countries acted independently to protect their own interest by undermining their currencies. A cheaper currency boosts exports.

Christine Lagarde, France's finance minister, was particularly vocal earlier this year about how Britain was gaining an advantage by doing nothing to stem the sharp fall in the pound against the euro.

Though the dollar was not mentioned in the declaration, its future as the world's reserve currency is likely to remain a topic for debate over the coming months or years, as China, Russia and India have expressed their desire to see long-term changes in the international monetary system.


But they have been careful to not push their desire for change too far -- in case the dollar slumps and the value of their large dollar-denominated investments plummet.

China said its officials raised the issue in Italy at a working lunch on Thursday lunch, but British Prime Minister Gordon Brown said he it was not on the formal agenda.

"There was not a serious discussion about this," Brown told reporters. "In this present situation as we're trying to get out of a deep recession, I don't want to give the impression that there's some major change about to happen round the corner that suggests that the present arrangements are destabilized."

White House press secretary Robert Gibbs said that the dollar was not brought up in bilateral talks on Thursday with U.S. President Barack Obama and Brazil President Luiz Inacio Lula da Silva, despite a lengthy conversation on the economy.

"I think that despite whatever talk you might hear, I don't see that there's any movement away from the notion of the dollar being that currency," Gibbs told reporters.

A sliding dollar would be bad for global growth as it introduces uncertainty into the financial markets and would raise the prices of commodities, such as oil, that are priced in dollars. It would also make it far more difficult for the U.S. to fund its deficits as investors would be wary of buying up U.S. Treasury debt.

AP reporters Charles Babington and Jane Wardell in L'Aquila and Michael Bushnell in London contributed to this report.

But of course the G8 pledge against "competitive devaluations" was not a pledge against coordinated and cooperative devaluations.

Rubino's essay can be found at his own Internet site, Dollar Collapse, here:

"A Tremendous Secret"

Wednesday, 15 July 2009

Last week FOFOA posted a long article on the coming devaluation of the dollar and how it might play out. He thinks it will be sprung on us without warning -- sooner rather than later:

The point is that during times of transition, surprises are always the order of the day. We have a crazy-out-of-control government that has given in to the temptation of printing its way out of this mess. The deflationists view this as an exercise in futility, while the inflationists say that you cannot print these amounts of dollars without it affecting the markets sooner or later.

A few cunning analysts are hedging their bets saying we will see another deflationary collapse first, followed by a bout of high inflation. But nearly all of the pundits who are still predicting "doom" have lengthened their horizon to several years to make way for the slow speed at which this train is tumbling down the tracks.

Frankly, I'm not buying it.

Call me contrarian, but I say that when the rubber band breaks this time it will snap back with a speed and fury that will make your head spin. In fact, I think that the longer this drags out (and I'm only talking weeks and months now), the more abrupt the correction will be.

Both the 38 year timeline and the 96 year timeline have created an imbalance in the fractional reserve system that has gone parabolic in the last decade. I am talking about gold. No, the price of gold has not gone parabolic, but the ratio of available gold to outstanding paper currency HAS gone parabolic. The central banks of the world are well aware of this. It is why they have slowly, inconspicuously changed from net sellers into net buyers. This gradual shift is extremely significant, because as net sellers they were supporting their own fiat regime. But now as net buyers, they, as a group, are stressing it. Why would they do this unless they knew it was about to reset?

This fractional gold reserve imbalance is the one imbalance the media and governments do not want you to know about. This is the one that will RESET the entire system. This imbalance, once corrected, will make central bank fiat currencies sustainable once again. This is why they are net buyers!

Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

The idea that we’ll wake up one day to discover that the international monetary system has been “reset” and that our dollar/euro/yen savings have taken a huge hit (while the local currency value of our gold and silver soar) reminds me of an exchange in The Virgin’s Lover, by Philippa Gregory (yes, I like historical romances).

The year is 1560 and the young queen Elizabeth rules a country nearly bankrupted by a Spanish alliance that produced only war and debt. The English treasury has been systemically debasing its coins by clipping and shaving them, so that their face value vastly exceeds their gold content.

Elizabeth’s advisors have decided that the monetary system needs to be reset, and have been importing borrowed gold. On the appointed day they intend to call in the circulating coins and replace them -- by weight rather than face value -- with newly-minted coins.

This devaluation will transfer citizens’ wealth to the government, impoverishing the former and enriching the latter. And if all goes as planned it will come as a surprise to most of the country.

But Elizabeth’s lover, Sir Robert Dudley, learns of the plan and is not happy:

Elizabeth turned and smiled at him and took his hand and held it to her cheek. “My Robert.”

“Tell me, my pretty love,” Robert said quietly. “Why are you bringing in boatloads of Spanish gold from Antwerp, and how are you paying for it all?”

She gave a little gasp and the color went from her face, the smile from her eyes. “Oh,” she said. “That.”

“Yes,” he replied evenly. “That. Don’t you think you had better tell me what is going on?”

“How did you find out? It is supposed to be a great secret.”

“Never mind,” he said. “But I am sorry to learn that you still keep secrets from me, after your promises.”

“I was going to tell you,” she said at once. “It is just that Scotland has driven everything from my mind.”

“I am sure,” he sad coldly. “For if you had continued with your forgetfulness till the day that you called in the old coin and issued new, I would have been left with a small treasure room filled with dross, would I not? And left at a substantial loss, would I not? Was it your intention that I should suffer?”


Elizabeth flushed. “I didn’t know you were storing small coin.”

“I have lands; my tenants do not pay their rents in bullion, alas. I have trading debts which are paid in small coin. I have chests and chests of pennies and farthings. Do tell me what I may get for them?”

“A little more than their weight,” she said in a very small voice.

“Not their face value

She shook her head in silence. “We are calling in the coins and issuing new,” she said. “It is Gresham’s plan -- you know of it yourself. We have to make the coins anew.”

Robert let go of her hand and walked to the center of the room while she sat and watched him wondering what he would do. She realized that the sinking feeling in her belly was apprehension. For the first time in her life she was afraid what a man was thinking of her -- not for policy but for love.

“Robert, don’t be angry with me. I didn’t mean to disadvantage you,” she said and heard the weakness in her own voice.

“I know,” he said shortly. “It is partly that which amazes me. Did you not think that this would cost me money?”

She gasped. “I only thought it had to be a secret, a tremendous secret, or everyone will trade among themselves and the coins will be worse and worse regarded,” she said quickly. “It is an awful thing, Robert, to know that people think that your very coins are next to worthless.”

Now, at least three things can be gleaned from all this:

1. FOFOA is right that the world’s governments stand to gain most from a surprise devaluation, since it will prevent us commoners from preemptively swapping our paper for real things, setting off an inflation that would make an even deeper devaluation necessary.

There's a rumor that I was reluctant to mention when it first started circulating, because it seemed a little too far down the tin foil hat / black helicopter road. But in this context it seems pretty reasonable. According to widely-followed newsletter writers Harry Schultz and Bob Chapman:

”Some US embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of US cash to purchase currencies from those govts, quietly. But not £’s. Inside the State Dept there is a sense of sadness & foreboding that ‘something’ is about to happen, unknown re a date—just that within 180 days, but could be 120-150 days.”

Bob quotes another source that “Panasonic has told their people to be back in Japan by Sept 09.”

Harry Schultz’s remarkable take on the situation:

“My HSL suspicion is that the elite plan another FDR style “bank holiday” of indefinite length, perhaps very soon, to let the insiders sort-out the bank mess which is getting more out of their control every day. Insiders want/need to impose new bank rules. Widespread nationalization could result, already under way.

It could also lead to a formal US$ devaluation, as FDR did by revaluing gold (& then confiscating it). But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies (which seems more likely)—& much in the news recently.

Any kind of bank holiday will push the US$ lower, which may be a bonus benefit to their ongoing scenario of letting the $ fall. Such a fall would get the devaluation they want without having to declare it. In sum, the insiders want more bank & system control, fewer banks & a lower US$. A bank holiday would suit all their needs."

The details of the plan will spread within an ever-widening circle of banking and government folks who, like Sir Robert, will demand the chance to profit from the insider trade of the century. Because such a secret is impossible to contain for long, once in place the plan has to be executed as soon as possible.

If the rest of us play it right, we’ll be able to at least protect ourselves, and maybe even make out (in percentage terms at least) like Goldman Sachs no doubt will.

Harry Shultz: “Obviously, U can’t open safeboxes if the banks are closed, so plan accordingly. During the FDR bank holiday, thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages.”

FOFOA: “It matters not one iota how well you do in the stock and bond markets leading up to the reset. Neither does it matter what the "gold market" does between now and then. The ONLY thing that matters is how you are positioned on that one - fateful - day! Everything will be reset and surprises will abound.”

http://news.goldseek.com/DollarCollapse/1247638020.php
Same Article @ Kitco here:
http://www.kitco.com/ind/Rubino/jul152009.html
And at 24hgold here:
http://www.24hgold.com/english/news-gold-silver--a-tremendous-secret-.aspx?article=2192913308G10020&redirect=false&contributor=John+Rubino

EVENTS AND DATES LEADING TO CURRENCY REVALUATIONS

SDRs

~SNIP

Yes, probably, because a global system is not very realistic at the moment. The first choice would clearly be a global system, but this is unlikely to happen straight away, so the first step would be regional systems like the one the Europeans developed.

But it would not necessarily imply a single currency?

No, what it would imply is not a single currency, not at all. What you need is a kind of anchor:

Europe had an artificial currency called the ECU, which was the currency that everybody, so to say, anchored on. You need something like that for technical reasons - some kind of “numéraire” to which you adjust your currency given the inflation differential.

The mechanics are difficult if you have a group of six currencies and one country has to change vis-à-vis all of them. So it is much easier to create an artificial currency and all are changing vis-à-vis the artificial currency, which would be a basket of the six currencies.Could it be compared to a regional SDR?

Yes, but the SDR never played that role, but it would be like an SDR

******************
**IMF Executive Board Backs US$250 Billion SDR Allocation to Boost Global Liquidity

Press Release No. 09/264

July 20, 2009

The Executive Board of the International Monetary Fund (IMF) has backed an allocation of
Special Drawing Rights (SDRs) equivalent to US$250 billion to provide liquidity to the global economic system by supplementing the Fund’s 186 member countries’ foreign exchange reserves.

The equivalent of nearly US$100 billion of the new allocation will go to emerging markets and developing countries, of which low-income countries will receive over US$18 billion.
The proposal will now be submitted to the IMF’s Board of Governors for final approval.

“The SDR allocation is a key part of the Fund’s response to the global crisis, offering significant support to its members in these difficult times,” IMF Managing Director Dominique Strauss-Kahn said.

The SDR allocation was requested as part of a
US$1.1 trillion plan agreed at the G-20 summit in London in April and endorsed by the International Monetary and Financial Committee (IMFC) to tackle the global financial and economic crisis by restoring credit, growth and jobs in the world economy. If approved by the Board of Governors with an 85 percent majority of the total voting power in a vote scheduled to close on August 7, the SDR allocation will be in effect on August 28.

"The allocation is a prime example of a cooperative monetary response to the global financial crisis," the Managing Director underscored.

The
SDR allocation will be made to IMF members that are participants in the Special Drawing Rights Department (currently all members) in proportion to their existing quotas in the Fund, which are based broadly on their relative size in the global economy. The operation will increase each country’s allocation of SDRs by approximately 74 percent of its quota, and Fund members’ total allocation to an amount equivalent to about $283 billion, from about $33 billion (SDR 21.4 billion).

SDRs allocated to members will count toward their reserve assets, acting as a low cost liquidity buffer for low-income countries and emerging markets and reducing the need for excessive self-insurance. Some members may choose to sell part or all of their allocation to other members in exchange for hard currency--for example, to meet balance of payments needs--while other members may choose to buy more SDRs as a means of reallocating their reserves. In supporting the allocation proposal, the Executive Board stressed that it should not weaken the pursuit of prudent macroeconomic policies, and should not substitute for a Fund-supported program or postpone needed policy adjustments.

~SNIP

A proposal for a special one-time allocation of SDRs was approved by the IMF's Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. This allocation would double cumulative SDR allocations to SDR 42.8 billion. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one fifth of the current IMF membership—have never received an SDR allocation.

The Fourth Amendment will become effective when three fifths of the IMF membership (111 members) with 85 percent of the total voting power accept it. Currently, 131 members with 77.68 percent of total
voting power had accepted the proposed amendment. Approval by the United States, with 16.75 percent of total votes, would put the amendment into effect.

REGIONS THAT WILL REVALUE:

GCC:

First: Areas of joint cooperation
The economic fields

The Supreme Council has reviewed reports referred to it on the implementation of the proposal of the Custodian of the two Holy Mosques on accelerating the march of joint action and to remove all obstacles that hinder its development. The Council approved the proposed solutions in the economic fields. It directed the authorities and committees operating in the Gulf Cooperation Council to address these obstacles in light of the proposed solutions and guarantee their removal by not later than September 2009 and in such a way to enhance economic integration and deepen economic citizenship for all citizens of the Council. It also approved the proposed mechanism for the implementation of resolutions of the Supreme Council.

In order to strengthen economic integration among the GCC member states and complete its various stages, implement the time frames for the establishment of the Monetary Union, launch the single currency as approved by the Council during Muscat Summit in 2001, the Supreme Council approved the Monetary Union Agreement which covers the legislative and institutional framework.

It also approved the Basic Statute of the Monetary Council and stressed the need to ratify the agreement as soon as possible in order to establish the Monetary Council which would implement the technical requirements of the Monetary Union and make the necessary preparations for the establishment the Central Bank and launch of the single currency.

The Council reviewed the progress in the Common Gulf Market and approved the market document including its principles, requirements, objectives and implementation mechanisms and all the resolutions taken in this respect. The council stressed the importance of its implementation in a manner that achieves maximum benefit for GCC citizens.

The Supreme Council discussed the march of economic integration among GCC member states through follow up reports referred to it regarding the progress made in the customs union, the common market, the monetary union project, and the long-term comprehensive development strategy (2000-2025), water interconnection project between the Council states, the railway project and its feasibility study and the smart ID card which aim at facilitating movement of GCC citizens. .

Under the blessed march led by His Majesty King Hamad Bin Issa Al-Khalifa of the Kingdom of Bahrain, the Supreme Council appreciated the economic vision of the Kingdom of Bahrain, which sets long-term scenarios for future trends of its national economy until the year 2030, and hopes that this vision which constitutes an integrated economic programme would modernize the Bahraini economy, increase productivity, innovation, economic, social and cultural growth and world competitiveness as part of enhancing the joint economic, social and cultural work among the GCC states.

On negotiations with states and economic groupings The Supreme Council has welcomed the signing of the Free Trade Agreement between the GCC member states and Singapore, and expressed hope for the conclusion of the ongoing negotiations on signing free trade agreements with friendly countries and groupings as soon as possible.

The Council regretted the fact that the European Union did not respond positively to the proposals of the Gulf Cooperation Council to conclude negotiations on the Free Trade Agreement between the two sides, which led to the suspension of such negotiations by the GCC member states. (looking good now 7/2009)

http://www.gcc-sg.org/eng/index.php?action=Sec-Show&ID=290&W2SID=26273

ASEAN MONETARY:

Currency Swaps The U.S. Federal Reserve extended its agreement to provide $30 billion in U.S. currency to the Bank of Korea by six months until the end of October, South Korea’s central bank said Feb. 4.

Peterson Institute for International Economics Monitor

C. Randall Henning assesses the slow birth of a potential new financial cooperative led by China, Japan, South Korea, and the growing economies of Southeast Asia, but they are struggling to define themselves and their mission.

Recorded February 27, 2009. © Peterson Institute for International Economics.

Steve Weisman:
This is Steve Weisman at the Peterson Institute for International Economics.

Our guest is C. Randall Henning, visiting fellow at the Institute and on the faculty at the School of International Service at American University, and the author of a new policy brief on the future of the Chiang Mai Initiative, which is a reference to a new monetary fund that is shaping up in East Asia. Thanks for joining us, Randy.

C. Randall Henning:
I’m glad to do this with you.

Steve Weisman:
Very few people have heard of the Chiang Mai Initiative (CMI), and you’re making the case that it’s something the whole world should be paying attention to because it is a joining of some very wealthy countries in East Asia who are talking about creating a fund that could become an important player in the global economy.
How did the Chiang Mai Initiative get started?

C. Randall Henning:
It goes back actually to the Asian financial crisis of 1997–98. At that time, the Japanese Ministry of Finance proposed what was dubbed an Asian Monetary Fund at the time. This was scuttled; it wasn’t created.

Steve Weisman:
The United States opposed it, among others, right?

C. Randall Henning:
That’s true. The US Treasury opposed it pretty strongly. But also, it lacked support from within the region, at least among some key countries. China in particular was at best ambiguous about it.

Steve Weisman:
What were they worried about?

C. Randall Henning:
Within Asia, there is some tension between Japan and China over the construction of arrangements like these. I think the Chinese weren’t yet prepared to form a common fund or common arrangement with Japan at that time. But Chinese policy has evolved, and it’s not yet clear that they are going to agree to a common fund in the form of this multilateralized CMI. But they have been supportive of the development of the Chiang Mai Initiative in the form of a network of bilateral swap arrangements. And that’s the next pointin the history: In 2000, in the Thai city of Chiang Mai, the ASEAN+3 group agreed to launch a network of bilateral swap arrangements and have been quietly and slowly forming this network over the last several years.

Steve Weisman:
It’s not yet a multilateral funding arrangement like a regional IMF?

C. Randall Henning:
Right. It is a network of bilateral swaps between pairs of countries: a Northeast Asian country (a potential creditor like Japan, China, or Korea) and a Southeast Asian country like Malaysia, Indonesia,or the Philippines. What they’re now talking about very seriously is combining these bilateral swaps into a common fund that they would manage on a regional basis collectively. That’s what they refer to as multilateralization. I use the word multilateral to refer to the multilateral institutions like the IMF and the World Bank.

They like to use the word multilateral or multilateralization to refer to collective regional management of these swaps in the form of a common fund.

Steve Weisman:
The richer countries involved here possess trillions of dollars of reserves in aggregate. So if they did some kind of multilateral fund, they would have a lot of money potentially to put into it.


C. Randall Henning:
Absolutely. These 13 countries, the 10 countries of ASEAN and the three countries in Northeast Asia—China, South Korea, and Japan—they hold about $3.5 trillion collectively. So if they put even a small proportion of these reserves at the disposal of a common fund, that would command quite a lot of resources. Now, they’ve agreed that the size of this common fund would be $120 billion. They haven’t yet agreed to create the fund but if they agree on the other elements of the fund, it would be $120 billion.

Steve Weisman:
The Clinton administration Treasury officials who were skeptical of this idea, whatever happened to them?

C. Randall Henning:
Some of the people who scuttled the Japanese proposal in 1997 are back serving in the Obama administration: Larry Summers, director of the National Economic Council at the White House, and Timothy Geithner, secretary of the Treasury.

Steve Weisman:
Have they changed their minds?

C. Randall Henning:
We’re going to have to ask them. They, and the Treasury department more generally, haven’t said very much about these arrangements for some time. Circumstances have changed since 1997, and I think the United States should be conditionally supportive of these arrangements.

Steve Weisman:
What are the conditions under which the United States would extend support?

C. Randall Henning:
I think the United States and the global community have an interest in these arrangements being transparent and coordinated with the International Monetary Fund (IMF) and that they be reported and discussed within the IMF executive board. So provided that these Asian governments were willing to do that, I think the United States should accept these arrangements because the Asians would be contributing substantial resources that can flow in parallel with IMF funds and potentially US funds in treating financial crises in the area.

Steve Weisman:
Do you see any danger of them going separately from the IMF and having their own deals to bail out countries in times of crises?

C. Randall Henning:
That of course is what a number of people are worried about. I’m not worried about that at this point. First of all, there are differences of view within Asia about how to construct and administer these arrangements, and I don’t think that they are willing to break with the IMF right now. They’re aware that they have to make more progress in the development of their regional surveillance mechanism. Before East Asia is going to be in a position to define any conditionality that would flow through a multilateralized CMI, until they develop a regional capacity for analysis and surveillance, they’re goin to continue to rely on the IMF to help define the conditions that should be attached to the financing. So the way it’s structured now in the bilateral swap arrangements under the CMI is that most of that money would not flow to a borrower in Southeast Asia unless that borrower also negotiated an IMF program. So it’s designed as a parallel line of defense. But that will continue under a multilateralized CMI, although they may change the ratio between the linked portion and the unlinked portion in these arrangements.

Steve Weisman:
These countries in Southeast Asia and, well, Northeast Asia, many of them have complained about being underrepresented in terms of voting shares and leadership of the IMF. Is the Chiang Mai Initiative a way of also pressuring the IMF to reform, as many people advocate, and restructure its leadership?

C. Randall Henning:
It has that incentive effect. And I think the East Asians are largely justified in this. I think many of these governments do deserve larger shares of quotas and votes within the IMF. To the extent that it does provide an incentive for others to overcome the difficult hurdles in those negotiations within the Fund to redistribute quotas, I think that’s so much the better. That’s something that the IMF, for its part, really does need to address. There in particular, we’d like to see some European governments be more willing to consolidate representation and quota shares within the Fund in order to make space for other deserving countries or the countries that deserve larger shares.

Steve Weisman:
Finally, Randy, you’re a political scientist and economist: What do you make of the fact that in the 10 or 11 years since this initiative started, countries like China and Japan, which were wary of each other, are now cooperating? There’s this new kind of evolving identity in East Asia. What political consequences do you see flowing from that?

C. Randall Henning:
It will be really interesting to see whether these governments agree to cross this threshold together. When I say cross this threshold, Imean create a common institution where they agree to be bound by a joint decision, because that’s something that they haven’t been willing to do in the past. It’ll be a tough decision for the Japanese and Chinese, Koreans and others.

If they in fact do it, it’ll be a real signal that something fundamental has changed within the region. It’s not clear yet; we should have a better indication in early May when there will be another ASEAN+3 finance ministers’ meeting in Indonesia. At that moment, we’ll be able to drive a more definite conclusion about which direction these arrangements are going in.
Steve Weisman:

Randy Henning, thanks very much for joining us today on Peterson Perspectives.

C. Randall Henning:

Thank you, Steve. Glad to do it.

Feb 20, 2009 Asian crisis meeting

BANGKOK - ASIAN finance ministers will consider expanding a currency swap scheme to US$120 billion (S$184.3 billion) at a meeting this weekend to help protect their economies from the global economic downturn.

The gathering of the finance chiefs of the 10 member Asean grouping, plus Japan, China and South Korea on the Thai island of Phuket on Sunday will also discuss how they can cooperate to help the region get through the crisis.

Most are heavily reliant on demand from the United States and the euro zone, which have both slumped into deep recessions following the financial storm that swept worldwide following the dismantling of Wall Street last October.

'The biggest issue will be the economic problems, and we will discuss ideas and mutual measures to deal with,' host of the meeting, Thai Finance Minister Korn Chatikavanij, told Reuters. 'We are hoping the meeting will find policies and measures among the group to tackle the problems together,' Mr Korn said.

Last week, Mr Korn said the meeting would discuss raising the size of the fund to US$120 billion from US$80 billion. 'This should go well because, from discussions with senior officials, everyone thinks the same way,' he said, without elaborating.


The Asean members plus Japan, China and South Korea in May last year pledged to pool bilateral currency swap arrangements under the so-called Chiang Mai Initiative in an US$80 billion multilateral fund that could be tapped in emergencies.

Under that agreement, Japan, China and South Korea would provide 80 per cent of the funding and Asean countries the rest.

On Thursday, Asian Development Bank President Haruhiko Kuroda urged Asian countries to cooperate on foreign exchange rates and make the currency swap network more effective, suggesting they should be able to raise the size of the swaps without the need for IMF-mandated reform programmes.

The idea behind the swap is to allow countries hit by short-term liquidity shortages to borrow foreign reserves from other countries to absorb selling pressure on their currencies.

Most bilateral swap lines in the network are designed to cope with emergencies such as a balance of payments crisis, and 80 per cent of the funding is linked to IMF-mandated programmes.

Mr Korn has said the expanded swap scheme would have to be ratified by regional leaders at a summit from Feb 27 to March 1 in Hua Hin, Thailand. It could then be implemented by the end of the year.

The ministers are also expected to discuss how to deal with the economic downturn and other forms of cooperation to bolster the region's defence against the global crisis.

Asian currencies have fallen this year against the dollar after most suffered steep falls last year. The Korea won, for example, fell more than 25 per cent last year and has fallen another 16 per cent so far this year. Exports from Asia have crashed in the last few months as demand fell away in developed countries. Japan, Taiwan, South Korea and Singapore have all reported record falls in exports.

AP