The volatility of the financial market, caused by the aggressive increase in interest rates in the US, appears as one of the reasons to bet on the project.
The conditions to establish a pan-Asian digital currency, which could foster regional monetary cooperation and reduce dependency on the US dollar, are favorable. This was estimated by a group of researchers from the Institute of World Economy and Politics of the Chinese Academy of Social Sciences in an article published at the end of September in the journal World Affairs, affiliated with the country’s Foreign Ministry.
“More than 20 years of deepening economic integration in East Asia has laid a good foundation for the foundation of regional monetary cooperation. The conditions to establish the Asian yuan have gradually been formed,” said the specialists, quoted by the South China Morning Post, which collected the key points of the proposal on Thursday.
The experts emphasized that a common digital currency in Asia would help safeguard the financial stability of the region, lessening the repercussions associated with the US currency. Among other reasons for promoting the initiative, they alluded to the volatility of the financial market caused by the aggressive increase in rates of interest by the US Federal Reserve, which had a negative effect on the foreign exchange reserves of Asian countries .
“Asian countries Oriental have been settling their trade in the US dollar for a long time, exacerbating currency mismatches and currency risks. caused the 1997 Asian financial crisis,” they recalled.
How would the currency work?
The operation of the digital currency would be defined based on the following scheme: the pan-Asian token would be pegged to a basket of 13 national currencies , including the Japanese yen, South Korean won and currencies of the ten countries that make up the Association of Southeast Asian Nations (ASEAN).
The proportion of each currency could be similar to the principle used by the International Monetary Fund with their special drawing rights (SDRs) that serve as a reserve asset for nations. Meanwhile, Distributed Ledger technology (DLT), which allows asset transactions to be recorded and business data to be stored in multiple places at the same time, would strengthen the currency, avoiding the dominance of a specific country.
Furthermore, the research team proposed to establish a department under the direction of the Office of Macroeconomic Research of the ASEAN+3 forum (which brings together China, Japan and South Korea) to coordinate the process
Beijing leadership and previous proposals
From the South China Morning Post they estimate that Beijing “very likely” would lead the process, since it has already carried out several tests with its sovereign digital currency, known as e-CNY.
The project, developed since 2014, was tested in 23 large cities, mainly for retail payments. In total,5.6 million sellers accepted e-CNY, while the cumulative transaction volume was stood at 100 billion yuan (13.9 billion dollars) as of the end of August.
It is not the first time that such ideas have arisen in the region. Former Malaysian Prime Minister Mahathir Mohamad proposed a common currency in East Asia to replace the US dollar during the crisis of 1997, and reformulated this project in 2019. In 2006, the Asian Development Bank also advocated founding the Asian Currency Unit, although the idea did not gain momentum.