ASEAN trade in own currencies 'impractical'

ASEAN trade in own currencies 'impractical'

KUALA LUMPUR (Reuters): An Association of Southeast Asian Nations (ASEAN) proposal that the grouping use local currencies in regional trade is neither practical nor expected to find enough support even among its members, analysts said.

The direction of the region's trade, the cost of developing a new trading system and lack of interest among some key members would keep the proposal shelved for the time being, they said.

"It (the proposal) is quite interesting, but I don't think it will work. It is not realistic because most tradable goods are priced in U.S. dollars," said Simon Mahadevan Flint, regional economist at I.D.E.A. in Singapore.

"The U.S. dollar is like the English language. It is a facilitator. Once you start using many currencies it will only get confusing," he said.

In addition, there would be so many additional costs in developing a new system such as transaction and translation costs.

ASEAN members, led by Malaysia, have proposed that a payments system be developed for trade among the members of the grouping. This was expected to reduce the use of the U.S. dollar and help revive their battered currencies.

Malaysia's International Trade and Industry Minister Rafidah Aziz said last week that the central Bank Negara Malaysia has been asked to develop the new trading system.

"As more and more traders understand how to go about it and appreciate the payment to be made in each other's currencies, it will happen. Some are already quoting in local currencies," Rafidah said at a conference with a U.S. business group.

"We want to get away from this dollar domination. That would go a long way to help ASEAN industry to sell and buy. it conserves foreign exchange and increases demand for our currency," she said.

Analysts say in theory it was possible for such an ASEAN system to work. "If you do trade in ASEAN currencies, it would in theory create demand for these currencies and stabilize their values," a European bank treasury economist in Singapore said.

Indonesia, Malaysia, Thailand, the Philippines and, to some extent, Singapore, have seen their currencies depreciate sharply against the U.S dollar in the last six months.

ASEAN also groups Brunei, Myanmar, Laos and Vietnam. Thailand put a spoke in the proposal by announcing that the plan may not be workable.

"When push comes to shove, more than one country will not play the game. Singapore wants to become a financial center, which is more than just its own economy. And Thailand has already said it will not work," said Bernhard Eschweiler, vice-president with JP Morgan in Singapore.