East Asia Launches $120b Currency Swap Agreement

Jakarta Globe, March 24, 2010

Seoul. East Asian nations on Wednesday finalized a $120 billion currency swap pact, giving them a safety net against future liquidity shortages.

The Chiang Mai Initiative Multilateralization (CMIM) covers South Korea, China, Japan and the 10-member Association of Southeast Asian Nations.

Its successful launch shows their commitment “to further enhance regional capacity to safeguard against downside risks and challenges in the global economy,” said a joint statement issued by Seoul’s finance ministry.

The agreement will allow each member to swap local currency for dollars for an amount in proportion to its contribution.

East Asian finance ministers, meeting in the Thailand city of Chiang Mai in 2000, endorsed a network of bilateral currency swap deals to avoid a recurrence of the 1997-98 financial crisis.

The expanded CMIM pact was agreed in May 2009 at a meeting of the so-called Asean plus Three in the Indonesian resort of Bali.

Japan and China will each provide 32 percent of the total, $38.4 billion. South Korea will contribute $19.2 billion or 16 percent, with the remaining $24 billion shared between the Asean members. The decision to provide currency swaps will be made within one week of a request so long as two-thirds of members vote in favor.

The money must be returned within 90 days but can be rolled over up to seven times, meaning repayment can be delayed for two years.

Ministers who met in Bali last year said the initiative was intended only to supplement and not to supplant the International Monetary Fund. They called it a “natural” step on the path to closer regional economic cooperation.

Agence France-Presse