Asian agreement to improve intraregional currency access

Asian agreement to improve intraregional currency access
Last October, Japan kick-started its flagging economy by expanding its programme of quantitative easing to around 80 trillion yen each year. Since then, at least 25 central banks have cut interest rates or made other moves to bolster growth and weaken their currencies.

BAKU, Azerbaijan - Japan, China, South Korea and Southeast Asian countries will make it easier for companies to get ahold of Asian currencies within the region by using government bonds as collateral.

Finance ministers and central bankers from the three East Asian countries and the Association of Southeast Asian Nations met here Sunday on the sidelines of the Asian Development Bank's annual meeting. Their joint statement included an agreement to step up efforts to establish this fund procurement framework.

Companies that need short-term loans of Asian currencies for operating funds will have easier access to such funds if financial institutions are able to procure Asian currencies flexibly by using government bonds, which enjoy high liquidity, as collateral. Currently, there are few fund transactions backed by government bonds in Asia.

Central banks and other financial institutions would need to link their settlement systems in order for government bonds and currencies to be exchanged directly. At the meeting, the participants agreed that such connections should be made between nations with compatible systems first, with the links to be expanded later.

Japan aims to promote long-term holding of government bonds by domestic and foreign financial institutions. But according to sources, China is the most enthusiastic about using government bonds as collateral. As China leans toward easing capital regulations, including transactions involving government bonds, the country apparently sees expanded use of bond collateral helping lead to globalisation of the yuan.

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