【正确答案】Expanding Economic Cooperation in Asia, Helping the Globe Get Rid of Crisis
Speech at Bo' ao Forum by Zheng XinLi
Executive Vice Chairman
China Center for international Economic Exchanges
18 April 2009
The financial and economic crisis sweeping the globe is dealing a heavy blow to the world economy. It is forecast that the global trade volume will drop by about 9 percent, industrial output by 15 percent and economic aggregate by 1 to 2 percent, indicating the most severe situation for 60 years. The economic crisis is testing the economic management capabilities of governments as well as the wisdom of mankind.
Asia is being impacted profoundly as the region is affected by the sprawling crisis, challenged by decrease of export, decline in employment, and rising risks in forex reserves. However, Asia is comparatively a fortunate region in the crisis in that its direct impact is less serious than the U.S. and Europe, its potential domestic demand is enormous, and its capital and forex reserves are abundant. With the exception of a few developed economies, most of the countries and regions are in the process of accelerated industrialization and urbanization. By expanding economic cooperation in Asia, combining industrialization, urbanization of Asia with the technologies of developed countries as well as capitals from within and outside the region, tremendous demands will take shape. Once the demands are translated into real purchase power and import power, they can play a vital role in driving the global economy out of the shadow of crisis.
At the rare historical moment of Bo'ao Forum where elites from Asian countries are gathering here, I'd like to propose three recommendations on the topic of expanding economic cooperation in Asia and helping the globe get rid of crisis.
First, to protect the safety of US Dollar reserves held by countries, Asian countries should join hands to demand that the U.S. make commitments to peg the value of US treasury bonds to the inflation rates of US Dollar.
For a long time in the past, tens of billions of US Dollars, worth of financial derivatives have accumulated, creating financial bubbles of enormous scale. The depreciation of the dollar has become an inevitable historical trend. The recent purchase of treasury bonds by the Federal Reserve in a sense initiated the procedures of dollar depreciation. Once the bubble occurs in the dollar and treasury bonds, Asian countries holding large reserve assets in dollar will suffer severe losses. The US government for the purpose of stimulating its economy, hopes that Asian countries continue to buy US T bonds and President Obama on many occasions maintained that US dollar is still the safe reserve currency. Countries which have considerable holdings and will continue to buy US T bonds such as Japan, India and China should join hands to demand that U.S. make commitments to peg the value of US treasury bonds to the inflation rates of US Dollar. This will help dispel the worries of these countries on losses from the depreciation of the dollar and on the other hand enable the US government to continue to gain foreign capital support, pushing the US economy to recovery as early as possible, thus creating a win-win situation.
Second, to promote the reform of international reserve currency system, Asian countries should, based on the Chiang Mai Initiative, explore the SDR as the Asian reserve currency.
For the future global currency system, the architecture with three pillars of US Dollar, Euro and RMB yuan is recommended. The three currencies offer options for companies and countries to choose in settlement. Whichever shows trend of depreciation, countries can abandon the currency; whichever demonstrates trend of appreciation, countries can buy in the currency. With three currencies competing and supplementing each other, a comparatively stable international financial system can be constituted. But for the internationalization of RMB, there is still a long way ahead. RMB will not become an international currency before a complete capital market and a full convertibility are in place. Facing the volatile global financial market, countries and corporations are looking for ways to safeguard the currency value. IMF has invented an instrument to protect reserve value by linking SDR to a package of currencies. Not long ago, Mr Zhou Xiaochuan made a proposal to replace sovereign currency with SDR as an international reserve currency, which attracted the attention from the IMF leadership and may be put on the agenda of discussion this year. Instead of waiting indefinitely, Asian countries should rather take actions first on their part. Based on the Chiang Mai Initiative, while expanding their reserve scales, countries shall discuss the introduction of SDR as the reserve currency by the weights of their respective GDP and the peg to a package of international currencies. Through this means, financial cooperation among Asian countries will be expanded and three purposes can be achieved: 1, risk resistance of Asian countries can be enhanced; 2, forex safety of Asian countries can be guaranteed; 3, the attractiveness of Asian countries can be increased, generating pilot experiences for extended SDR application by IMF.
Third, to step up the development of Asian countries, it is suggested to establish the Asian Infrastructure Investment Bank and Asian Agriculture. Investment Bank.
Infrastructures in most Asian countries are lagging behind. To step up industrialization and urbanization, it is essential to address the infrastructure issue first. There is abundant capital in this region. Rather than to buy US T bonds which bear exchange rate risks, to invest in Asia will yield higher rate of return than the US T bonds. The Asian Infrastructure Investment Bank, with share holdings by member countries, will serve to create conditions for attracting foreign capital and supporting the economic take-off. Asia is rich in agriculture resources and boasts immense potential productivity. By establishing the Asian Agriculture Investment Bank, countries with favorable resource conditions will be helped to develop the production of goods in short supply worldwide, such as paddy and tropical crops, which will be welcomed by many countries. The two commercial banks will pose competition with ADB, which is conducive to improving the operational efficiency of banks. The three banks will seek investment opportunities in Asia, which can create import demands for equipments and raw materials, contributing to global economic recovery and prosperity and development of Asia.