Asian central banks to bolster relations

Asian central banks to bolster relations

TOKYO (Reuter): Asian central banks are expected to bolster ties at their first governors' meeting tomorrow, but the Bank of Japan remains wary about proposals to develop a regional bank to formalize cooperation.

Some Asian financial officials have suggested such an institution, modeled on the Bank for International Settlements (BIS) in Basle, Switzerland, monetary sources say.

But a Bank of Japan official told Reuters yesterday that the 11-member Executive Meeting of East Asia and Pacific Central Banks, involving central bank governors and vice governors, would not be the first step towards such an institution.

The grouping, created by the initiative of the Japanese central bank in 1991, is made up of Australia, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, China and Hong Kong.

The Bank of Japan official said he saw the meeting, which is to be held in Tokyo, as an opportunity to exchange information and opinions on monetary and financial policies, and to discuss what kind of cooperation among central banks was feasible.

"However, it won't be a place for discussions to achieve a specific goal," he said.

A senior BOJ official said it was too early to set up an Asian BIS, but added: "It is still important to continue discussions on this kind of cooperation in a constructive manner."

Other members were more enthusiastic about institutionalizing cooperation.

Bernie Fraser, the Australian bank governor, has said the need for Asian central bank cooperation was steadily increasing as financial markets in the region continued to liberalize and volatile short-term capital flows increased.

"That coordination could be achieved through an institution modeled on the BIS, which provides funding facilities for international financial operations," Fraser said.

Bank of Thailand Governor Rerngchai Marakanond said an Asian BIS was expected to be an upgraded form of the governors' grouping.

The central banks would contribute to an Asian BIS capital fund to be used in financial crises and to help finance regional development projects, he said.

But a Japanese monetary source said it would be costly to set up and maintain a BIS-like body, and that the idea was premature.

The central bankers are also expected to discuss risk management of financial institutions.

In April, Japan agreed with the monetary authorities of Australia, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore and Thailand to establish bilateral repurchase agreements to provide liquidity in times of currency crisis.

Such pacts give participants instant access to cash to defend their currencies against excessive volatility through sales of holdings of U.S. government securities to partners with a promise to buy them back later.