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.