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Credit investors ponder a GM-sized hole in the financial universe
From Agence France-Presse
via AlJazeera.net
Tuesday, March 28, 2006
http://english.aljazeera.net/NR/exeres/50B0028B-B417-4FDE-866C-
842CB3280A4F.htm
East Asian economies need toprepare for a possible collapse of the
US dollar, the Asian Development Bank says.
The warning comes as the US trade deficit reaches a record high and
global interest rates continue to rise.
Masahiro Kawai, the ADB's head of regional economic integration,
said on Tuesday: "Any shock hitting the US economy or the global
market may change investors' perceptions given the existing global
current account imbalance.
"Our suggestion to Asian countries is: Don't take this continuous
financing of the US current account deficit as given. If something
happens then East Asian economies have to be prepared."
He said because of the highly interdependent nature of East Asian
economies, if countries worked together to allow their currencies to
collectively appreciate against a tumbling dollar then the cost of
adjustment would be spread.
"The possibility of a US dollar collapse or sharp decline may be
small at this point but it would generate very significant turmoil
so East Asian economies ... ought to be ready for that."
The Manila-based ADB is working on several indices of Asian
currencies that could be helpful to monitor exchange rate movements
in the case of a sharp dollar decline, although its main intention
is to help develop regional bond markets.
However, the ADB is still trying to decide which currencies to
include in this Asian Currency Unit (ACU) amid political
sensitivities about the inclusion of the Taiwan dollar given China's
claim over the island.
The ADB had apparently been aiming to launch the ACU -- a weighted
basket of Asian currencies -- before the bank's annual meeting in
May, but Kawai said this would not be possible.
He said there was no specific launch date yet but hopefully it would
be unveiled "in the next few months".
But Kawai played down suggestions that the ACU could foreshadow a
single Asian currency like the European Currency Unit (ECU), which
existed for two decades before the creation of the euro in 1999.
He said: "The ECU had an official status but the ACU has no such
official status. We are not in the position to decide whether this
should become a real currency or not."
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