Currency cooperation next step in East Asia's recovery — ADB

The swift post-crisis recovery of emerging East Asian economies can lead to more balanced long-term growth if aided by exchange rate cooperation, according to the Asian Development Bank (ADB) on Tuesday. "Regional exchange rate cooperation — if handled wisely — can ensure intra-regional exchange rate stability while allowing inter-regional flexibility; thus helping promote intra-regional trade and investment, and rebalance the region's sources of growth," the banks said in the latest edition of ADB's Asia Economic Monitor. East Asia's emerging economies have seen strong economic growth due to large, long-standing trade surpluses amidst developed countries' rising debt, Manila-based ADB said. This has prompted calls for East Asian countries to allow their currencies to appreciate in accordance with their newfound strength. "Rapidly growing interdependence in trade and finance and the increasing importance of spillovers and contagion effects within the region make regional exchange rate cooperation essential," said Iwan Azis, head of ADB's Office of Regional Economic Integration that prepared the report. "At the same time, regional currency flexibility against major currencies outside the region would help emerging East Asia better manage capital flows and respond to external shocks," he added. The Asia Economic Monitor suggests that the best way forward for East Asian economies would be to adopt informal monitoring zones for their exchange rates against an external reference currency or a basket of currencies. Any big shift outside those non-binding zones would prompt confidential discussions to reduce deviations. Over time these arrangements could become more formal. The report also notes that the weaker outlook for the global economy, coupled with the phasing out of fiscal and monetary stimulus within the region, means economic growth in the region should be moderate next year. "The V-shaped recovery has run its course in emerging East Asia and the challenge for the region is to put in place national policies that will translate swift recovery into long-term growth," Azis explained. The Asia Economic Monitor assesses the outlook for emerging East Asia, which comprises the 10 economies of the Association of Southeast Asian Nations, plus the People's Republic of China, the Chinese territory Hong Kong, Republic of Korea, and Taiwan. — TJD/VS, GMANews.TV