East Asian states move close to foreign exchange swap

May 4th, 2008 - 9:24 pm ICT by admin  

Madrid, May 4 (Xinhua) Finance ministers of China, Japan and South Korea Sunday reached an agreement on the key elements of a regional foreign exchange reserve swap. “We reached an agreement on several key elements of the CMI (the Chiang Mai Initiative) multilateralization,” the finance ministers said in a joint statement after they met on the sidelines of an annual Asian Development Bank (ADB) meeting.

The CMI, which takes its name from Thailand’s largest city Chiang Mai where the initiative was formalised, is a regional financing arrangement agreed by the 10-member Asean bloc plus China, Japan and South Korea (or Asean+3) in 2000 to prevent a recurrence of the 1997-1998 Asian financial crisis.

Under the scheme, the central banks of participating countries can swap foreign exchange reserves to counter speculative moves on their currencies.

CMI multilateralization is the next step, as was agreed at the last Asean+3 meeting in Japan’s Kyoto last year, which would be moving from the bilateral system to a multilateral one.

The proposal says that by setting up a common reserve pool, in which each country would put an amount of foreign exchange reserve under a single agreement, any country in the framework could draw from the fund to cope with short-term liquidity difficulties.

“We agree to further expedite our efforts to reach consensus on all of the elements of CMI multilateralization, particularly through the enhanced internal discussion among the three countries,” the statement said.

Shin Je-yoon, vice finance minister of South Korea, told reporters after the meeting that the pool would be upgraded to at least $80 billion, with 80 percent of the corpus to be contributed by Japan, China and his country.

The Asean comprises Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

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