ASEAN: Increase in Chang Mai Initiative comes amidst declining Asian currencies

Updated On: Feb 23, 2009

Japan, China, South Korea and ASEAN have agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies amid the deepening global recession.

The amount is 50 percent more than the $80 billion proposed last May, and an expansion of the current arrangement called the Chiang Mai Initiative that allows only bilateral currency swaps.

The fund is aimed at ensuring central banks have enough to shield their currencies from speculative attacks.

“Capital flows into the region have decreased due to global de-leveraging,” the ministers from ASEAN and their three northern neighbors said in a joint statement. “This can be a significant downside risk to regional growth, which has already been dragged down by the global economic downturn.”

Eight of 10 of Asia’s most-traded currencies outside of Japan have declined against the dollar in the past year, led by a 37 percent slump in the Korean won and a 23 percent drop in Indonesia’s rupiah, according to Bloomberg data.

Japan, China and South Korea will provide about 80 percent of the currency pool with the 10 ASEAN members contributing the remainder, the statement said, in line with last year’s proposal. How much each country will contribute is still under discussion and no date was set for completion of the new arrangement.

Malaysia’s gold and foreign-exchange reserves fell to $91.3 billion on Jan. 30 from $123.7 billion on Aug. 15. Indonesia’s reserves have slumped by $10 billion since last July to $50.9 billion at the end of January.

Asian nations are expanding or forging new bilateral currency swap agreements even as they set up the combined reserve pool. Japan and Indonesia yesterday agreed to boost the size of an existing bilateral swap agreement to $12 billion from $6 billion. China and Malaysia this month agreed on a three-year 80 billion-yuan ($11.7 billion) currency swap.

Bloomberg, Asia Agrees on Expanded $120 Billion Currency Pool, 22 Feb 2009, http://www.bloomberg.com/apps/news?pid=20601080&refer=asia&sid=aJfrsvG7Q...

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