30 May 2006

Asian Development Bank sounds alarm on dollar - Business - International Herald Tribune

Asian Development Bank sounds alarm on dollar - Business - International Herald Tribune: "Asian countries need to prepare for a possible sharp fall in the dollar and should allow their currencies to appreciate collectively if that happens, a senior Asian Development Bank official said Tuesday.

'Any shock hitting the U.S. economy or the global market may change investors' perceptions, given the existing global current account imbalance,' Masahiro Kawai, the bank's head of regional economic integration, said at a news conference.

'Our suggestion to Asian countries is, don't take this continuous financing of the U.S. current account deficit as given. If something happens, then East Asian economies have to be prepared.'

Kawai said the chances of a rapid fall in the dollar were still small, but it could cause a significant turmoil in Asia if it happened.

'If the U.S. dollar goes down in the future, it would be best for East Asian countries to allow appreciation collectively,' so that the costs of adjustment could be divided among them, he said.

'I don't think the possibility is high,' Kawai said of a dollar plunge, 'but it is like avian flu: the possibility of avian flu spreading all over Asia or the world is limited, but once it spreads, it would have tremendous impact.'

Kawai said that by East Asia, he meant emerging East Asian markets, excluding Japan.

Kawai said the Manila-based development bank's planned establishment of an Asian currency unit, made up of a basket of Asian currencies, would help monitor the collective path of regional currencies in relation to the dollar.

The benchmark has been delayed by disputes over inclusion of the Taiwan dollar.

But Kawai played down suggestions that an Asian currency unit, or"

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