The Asian Development Bank said on Monday it plans to launch several types of a theoretical Asian currency unit (Acu) comprising a basket of Asian currencies, and will announce details by the end of June.
Masahiro Kawai, head of the ADB's office of regional economic integration, declined to say what types of units the Manila-based institution plans to initially launch along with an already planned Acu using the Asean+3 currencies, which it hopes will eventually lead to ACU-denominated bond issuance.
But he said the ADB could consider compiling other units that include the Hong Kong and Taiwan dollars, the Indian rupee, and currencies of other members.
"We would like to come up with a few different types of indices," Kawai told Reuters in an interview, adding that the ADB has members in South and Central Asia as well as the Pacific region.
"We hope this currency index will be as market-friendly as possible," Kawai said. He hopes private investors will issue Acu-denominated bonds in the future, and said the ADB itself could also launch Acu bonds as needed.
Asean+3 comprises Asean's 10 members plus China, Japan and South Korea. Asean groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Kawai said the Acu would be different from Europe's Ecu, which evolved into the euro. The Asian unit would be an indicator - not a traded currency - reflecting how the region's currencies as a whole are moving against the dollar and the euro and how each currency in the Acu is moving against the average level of participanting currencies.
Asia, unlike Europe in 1979 when the Ecu was established, does not have a rigid mechanism that would force countries to act if their own currency deviates from the new Acu, Kawai said.
"The ADB cannot decide whether Asia will create a Europe-like system. That decision will be up to each government in the region," Kawai said.
In Europe's Exchange Rate Mechanism (ERM), the European currency unit (Ecu) acted as a divergence indicator for participating currencies and helped promote monetary stability throughout the 1980s and 1990s.
Kawai, also a special adviser to ADB President Haruhiko Kuroda, said the ADB would not be able to launch the units before its annual meeting in early May but he hoped to announce them by the end of June.
The launch has been delayed because the ADB needed more time to consult officials and traders in the region on how the Acu's basket should be compiled, including how the weighting of each currency should be set.
Critics have said that for the Acu to be market-friendly, the weighting of the Chinese yuan in the basket should not be excessive as it is not fully convertible.
For instance, calculating the Acu using each country's respective share of GDP measured at purchasing power parity could boost the weighting of the yuan.
Kawai said the weighting and components of the Acu will be based on countries' share of nominal GDP as well as trade volume, the level of capital flows or convertibility of their currencies. "I hope the Acu will be used for capital transaction so the issue of currencies' convertibility will be very important."
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