The Third Network of East Asian Think-Tank (NEAT) Financial Cooperation Conference, held in Shanghai on April 7, brought the issue of "establishing a unified currency in East Asia" to the table.

Also discussed at the meeting were topics including the "post Chiang Mai system" and the "Asian bond market."

It is possible, in the foreseeable future, that East Asian countries form a unified currency system, said Wu Jianmin, spokesman for the Chinese People's Political Consultative Conference and president of the China Foreign Affairs University, in an interview with the First Financial Daily.

Currently currency swap transactions under the Chiang Mai Initiative (CMI) have reached a total volume of US$79 billion, according to Wu. It is expected to reach US$100 billion in 2008.

CMI is an agreement signed by 13 finance ministers of the Association of Southeast Asian Nations (ASEAN) and China, Japan and the Republic of Korea, or ASEAN + 3 countries, on the Second ASEAN + 3 Finance Ministers Meeting in Chiang Mai, Thailand in November 1999. CMI aims to create a network of bilateral swap agreements among ASEAN + 3 countries, to address short-term liquidity difficulties in the East Asia region and to supplement the existing international financial agreements.

The CMI system needs to enlarge its scale, extend its functions from the current "rescuing" and assistance to combat financial crisis to others like monitoring hot money and macro-policy adjustment, said Wu. In addition, he suggested to establish some form of "East Asian cooperative reserve fund" by around 2015.

However, Wu pointed out, cooperation among the East Asian countries is still focused in the trade area. Within the ASEAN + 3 region, international trade in the area accounts for 55 percent of the total international trades by the countries.

The figure for EU is 65 percent but that for the North American Free Trade Area is 45 percent. The financial cooperation between ASEAN + 3 countries is comparatively underdeveloped.

Outbound capital flow from these countries are largely long-term investment, while inbound flows are often short-term speculative hot money, which results in high risks for financial crisis, said Bank of China vice president Zhu Min.

The US$79 billion swap transactions under CMI have effectively reduced the chances for another financial crisis and contributed to regional financial stability, but still the CMI system needs to enlarge its scale and extend influences further, Wu stressed.

As for the proposed unified East Asian currency unit or currency index that stirs heated debate among the countries, Wu said it is understandable that so much discrepancy emerged. He believed that there is a concrete demand by the countries to establish a unified currency similar to the euro.

By rough estimation, the cost from currency exchange in international trades accounts for 20 percent of the total. A unified currency may reduce trading cost significantly.

However, it is very hard to persuade a country to give up its constitutional right of issuing own currency. off To develop a proper solution to the problem likely to be accepted by the countries needs great efforts in conducting systematic study, discussion, negotiation and cooperation, which is likely to be a painful and lengthy process.

The first and most urgent step, said Wu, is to set up a cooperative research mechanism to make thorough exploration into the issue finding out the critical points of the problem, maximizing common interestsin the new currency system.

On this purpose, Wu suggested to officially start up a systematic study of the "East Asian unified currency" or "East Asian currency index" issues.