There is an interesting article in the Financial Times today about a delay in the plans to launch the Asian Currency Unit (Acu). Not unsurprisingly the delays have been caused by “political and technical arguments over which currencies to include and how the weighting system would work” (this according, as they say, to ‘sources’ familiar with the problem). Some background to the Acu can be found via this wikipedia entry, and in particular this useful link on what the Acu will be, and what it won’t be..
Now what seems to me to be important here is not the delay, but the project in principle. What the Acu certainly will not be is an Asian equivalent of the Euro. As Giovanni Capannelli, senior economist in the ADB’s Office of Regional Economic Integration, comments:
the name might even be changed to the softer “Asian Currency Index” to avoid giving the impression that the proposed unit was the equivalent of the European Currency Unit that foreshadowed the euro.
and as Haruhiko Kuroda, the ADB’s Japanese president, is at pains to point out:
“This is not an official kind of currency unit like the Ecu….It would just be an indicator of exchange rates, with no exchange market intervention and no settlement involved.”
What the Acu will be is a valuable denominator for bond issues. Again as Kuroda has said:
“The ACU could also facilitate development of an Asian multi-currency bond market and a deepening of capital markets, which would help reduce exposure to external shocks.”
It is this bond market factor that I think could be important, facilitating as it might a deepening in the reach of Asian capital markets. And here we come to an interesting issue: may Asia in fact benefit here from a second mover advantage? Many global economists are want, these days, to describe the euro as an ‘interesting experiment’. If you read between the lines – oustide of those (economists at the ECB for example) whose job it is to declare the euro an ‘outstanding success’ – you will find there are now suprisingly few who are prepared to stick their neck out and endorse this success. “More data awaited” is the normal, and prudent, view. So may Asia in fact benefit from what is being learnt in Europe? I venture to suggest that it may. The resounding success of the euro has been in its role in creating a huge capital issue euro-bond market . The resounding weakness has been the lack of a strong central regulatory infrastructure (either at the ECB or in Brussels) to ensure that the cheap money which became available with the low interest rates which accompanied the common currency wasn’t abused. There is no danger of this happening in Asia, as there is no danger of a common currency being introduced since there is no danger of anyone believing – even in their wildest moments – that the necessary regulatory framework could be achieved, either now, or especially after the final verdict on the euro ‘experiment’ is finally passed.
Interestingly, University of Missouri-St Louis history professor John Gillingham was in the UK recently advocating a reform of the euro (see my Afoe post on this here), and his core proposal was to convert it into just what the ADB is proposing to introduce in the form of the Acu. Unfortunately the lesson may come a little late in the day for the EU, since it is very hard to firmly shut the door after the horse has decisively bolted (see for eg Italian public debt, or the Spanish housing boom), but it may come ‘just in time’ to underpin the solidity of the ADBs latest, and most interesting, initiative.