Thailand signs currency swap deal with Japan

Thailand and Malaysia signed currency swap agreements with Japan last week as part of a regional strategy to strengthen resilience against financial crises and buttress economic stability in a deal that allows them to swap their currencies with United States dollars when needed from a facility holding $3 billion.

Because the dollar is the global reserve currency, the demand for dollars in times of financial crisis can exceed the supply available to nations in need of them. This was one factor that accelerated the Asian financial crisis of 1997-98.  Following the crisis, Thailand instituted a bold series of reforms and today its central bank and financial institutions are on much more solid ground and able to weather global volatility, as evidenced by the Kingdom’s resilience during the 2008 global financial crisis that erupted in the United States.

The agreement between Thailand and Japan was achieved last week at a meeting of ministers of finance and central bank governors from Japan and ASEAN (Association of Southeast Asian Nations) countries in Yokohoma, Japan, on the sidelines of the annual Asian Development Bank meeting.

Tim Adams, the chief executive of the Institute of International Finance, the Washington D.C.-based association of the global financial industry, praised the agreements between the three countries.

“I’m all for it. I think supplementing what the [International Monetary Fund] can do and other institutions is important as long as it doesn’t interfere with some of the programs the fund has in place … I think it’s such a great idea and I think it helps stabilize the region in times of crisis, but having flexible exchange rates is also a shock absorber,’’ Adams said.

Japan is also proposing a greater role for the yen in the monetary positions of ASEAN countries. Some ASEAN countries have been taking steps to make themselves less dependent on the dollar.

“Looking back at 2008 (when the financial crisis hit), there were no dollars in the market, and with the dependency on dollars, that caused problems,” Japanese Finance Minister Taro Aso said.

“The yen is a stable currency, and I think it could play a huge role [when dollars are in short supply]. We had a strong request from Asian countries [about the yen-swap framework], and we thought it was important to answer those needs,’’ Aso added.

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