By Kim Kyoungwha
Dec. 10 (Bloomberg) -- The central banks of China, South Korea and Japan agreed to meet in 2009, starting regular consultations to ensure currency stability in Asia, the People's Bank of China said.
The agreement comes ahead of this week's summit among leaders of the three nations in Japan to discuss cooperation on overcoming the financial crisis. A 33 percent drop in the South Korean won this year has put pressure on President Lee Myung Bak to broker an agreement on pooling some of the region's $4 trillion in foreign-exchange reserves.
“The region as a whole sits on significant reserves and they could be deployed to help stabilize financial sentiment as well as exchange rates,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. The agreement is “with a view to build a long-term financial architecture in Asia that helps prevent the return of extreme financial volatility.”
Japan's Prime Minister Taro Aso and China's Premier Wen Jiabao will meet with Lee in Fukuoka on Dec. 13. Lee said last month that his government wants larger currency swap agreements with Japan and China, a move that might help prevent the collapse of the won, Asia's worst performing currency this year.
Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least $80 billion in foreign-exchange reserves to be tapped to protect their currencies. That was an expansion of the so-called Chiang Mai Initiative, a deal that allows countries to lend each other money at favorable terms if help is needed to support their exchange rates.
'Self-Rescue'
“This cooperation is kind of a regional self-rescue,” said Ding Zhijie, deputy dean of finance at Beijing's University of International Business and Economics. “The financial crisis showed that the global financial organizations didn't work effectively in disciplining the U.S. and giving warning to other countries.”
East Asian economies will probably expand at the slowest pace in eight years in 2009 as easing export demand and declining investment and consumer spending portend “hard times” for the region, the World Bank said.
East Asia, which excludes Japan and the Indian subcontinent, will expand 5.3 percent next year, slower than the 7.4 percent rate the World Bank predicted in April. Growth will probably be 7 percent this year, the Washington-based lender said its semi- annual report today.
“It's important that they will meet regularly when things are heading for the worst,” said Kwon Young Sun, an economist at Nomura International Ltd. in Hong Kong. “To make this meeting meaningful, we need them to coordinate their monetary and foreign-exchange policies together to counter the global crisis, like expanding their currency swaps.”
South Korea's stock index rose by a record and the won surged 14 percent after the central bank signed a $30 billion swap deal with the Federal Reserve on Oct. 30.
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