Asia should set up an exchange-rate coordination mechanism to ensure the region’s currencies reflect economic fundamentals and maintain financial stability, central bank Governor Perng Fai-nan (彭淮南) said.
“Short-term international capital flows can create tension for intra-regional exchange rate movements,” Perng said at an Asian Development Bank (ADB) meeting in Manila on Friday, according to a transcript of the speech posted on the lender’s Web site.
During the past year, capital has poured into Asia and “disrupted economic and financial stability,” Perng said, adding that regional economies need to be well prepared for “external shocks caused by volatile and unpredictable” flows.
Emerging-market bond funds had inflows for 12 straight weeks through the first week of last month, according to data from EPFR Global, a US provider of fund flows.
Investors put US$540 million into emerging-market fixed-income funds in the week ended April 25, EPFR said, and the MSCI Emerging Markets Index has gained 11 percent this year.
“It’s not difficult to see that short-term international capital movements rather than economic fundamentals have become the main driver of movements in exchange rates and stock prices” across Asia, said Perng, who is the longest-serving central bank governor among Asian economies tracked by Bloomberg.
Perng, 73, has headed the central bank since February 1998, according to the monetary authority’s Web site.
Perng, who left borrowing costs unchanged at 1.875 percent for a third meeting in March, has said he would focus more on inflation than growth this year.
Asian policymakers agreed last week to double the size of their foreign-currency reserve pool as they step up efforts to shield the region from global financial shocks.
Japan, China, South Korea and 10 Southeast Asian nations agreed on Thursday to boost the so-called Chiang Mai Initiative Multilateralization Agreement to US$240 billion.
Even as they increase cooperation, Asian nations are unlikely to follow Europe in pursuing a single currency anytime soon, Malaysian central bank Governor Zeti Akhtar Aziz said last week.
The region remains too diverse and such a move would be too costly, she said.
Philippine central bank Deputy Governor Diwa Guinigundo echoed Perng’s concern, saying on Friday at an ADB meeting that capital flows complicate monetary policy.
A regional exchange-rate coordination system would also help facilitate intra-regional trade, investment and economic integration by lowering transaction costs, Perng said.
The yen remains close to a high against the dollar that has hurt exporters such as Sharp Corp, while South Korea’s Samsung Electronics Co has benefited from a weaker won.
Taiwan may sign a cross-strait currency settlement agreement with China as early as this month, the Taipei-based Economic Daily News reported on Friday, without saying where it got the information.