The nation's currency should be included in the proposed Asian Currency Unit (ACU), a concept introduced by the Asian Development Bank two years ago, to fully represent the external value of Asian currencies, governor of the central bank Perng Fai-nan (彭淮南) said yesterday.
The ACU refers to a weighted index of a basket of Asian currencies, which would serve as a benchmark to monitor movements in the values of currencies in the region and provide an important basis for a regional exchange-rate stability mechanism.
Perng stressed that the ACU should include all major Asian currencies to represent the true economic configuration and financial structure of Asia.
"To be more specific, Taiwan's economic strength makes it one of the regional powerhouses in Asia. An ACU without the Taiwan dollar would not represent the true external value of Asian currencies," he said during a speech at the Asian Development Bank's (ADB) 40th annual meeting yesterday in Kyoto, Japan.
Although the ACU concept was proposed two years ago, it has been on hold due to political factors. Perng called for its continued promotion to facilitate Asia's financial development.
Perng also urged Asian countries to establish a formal regional exchange-rate coordination mechanism to maintain the stability of Asian currencies as intra-regional trade and investment in Asia have been expanding since the 1990s.
"Stable exchange rates not only contribute to regional economic stability but also further promote trade and investment by bringing down transaction costs and reducing the uncertainties caused by exchange rate volatility," he said.
The persistence of global trade imbalances in recent years highlights the importance of setting up such a mechanism. The arrangement could provide a buffer against downward pressure on the US dollar should global imbalances continue to worsen, Perng added.
To help assist member countries in the event of a financial crisis, the ASEAN Plus Three set up a bilateral swap mechanism in 2000, which is mostly based on mutual trust between the parties involved.
But such a bilateral mechanism would not be able to help contain the contagion effect arising from a financial crisis as it is too small when compared to the scale of the region's foreign exchange markets, Perng said.
He therefore suggested the initiative be expanded into a multilateral swap mechanism encompassing the whole of Asia, with the ADB acting as an intermediary to enhance its function.
The ADB could also set up mechanisms similar to the IMF's "General Arrangements to Borrow" and "New Arrangements to Borrow" to help provide a supplementary source of funds to help member nations weather any financial crisis, he suggested.
At the end of his speech, Perng protested against the ADB's unilateral alteration of the nation's membership designation to "Taipei, China."
"I would like to reiterate that the Republic of China is a founding member of the Bank and has fully carried out her membership responsibilities ? I would also like to call on member countries to respect each other concerning the equal opportunities of hosting meetings and workshops of the Bank," he said.