With markets tensely awaiting news of a revaluation of the Chinese renminbi and speculation that this could happen during the annual meeting, ADB President Haruhiko Kuroda moved to quell fears that other Asian currencies could be destabilized. "I do not anticipate any turbulence, because even if China's currency regime is changed, the adjustment will be gradual and not on a scale that could affect other Asian currencies significantly," he told Emerging Markets.
Kuroda also sought to calm fears that recent anti-Japanese demonstrations in China could serıously undermine relations between the two principal regional powers. Deteriorating relations between the two countries would set back the pace of regional economic integration in Asia. Regional cooperation is a key part of the agenda that Kuroda will be promoting to ADB governors in Istanbul. The recently installed president of the ADB expressed confidence that this agenda would be widely accepted.
The former vice minister for international affairs at Japan's finance ministry said he hopes to see the Chiang Mai Initiative, which he pioneered several years ago, strengthened during the annual meeting. He will be taking part in a meeting of Asean+3 finance ministers tomorrow, where he said that the "functioning and size" of the regional network of currency swaps is expected to be enlarged. Moves to strengthen the Asian Bond Market Initiative are also likely, he said
Kuroda took a strong line on the renminbi. "China's currency peg was useful in stabilizing a quite high inflation economy in the early stages. But now the economy has grown up, [so] pegging the currency to the dollar does not make much sense," he said. "I think it is better to make the currency regime more flexible as soon as possible. But adjustment of the exchange rate should be gradual so as to avoid any shock affecting the Chinese economy as well as the global economy.
"I am relatively sure that the Chinese authorities will make appropriate decisions. Even if the exchange rate regime is changed, so long as it is gradual, it would not much affect other Asian currencies, which have been relatively flexible except for a few cases," he added. Many Asian countries "have accumulated huge reserves and almost all of them have current account surpluses," he said. Therefore they are well placed to absorb shocks.
The annual meeting has been overshadowed by a sudden and dramatic deterioration in China-Japan relations. But Kuroda, who recently met with Chinese leaders including President Hu Jintao, said he was "optimistic" that economic sense would prevail over political strains. "The economic relationship between Japan and the PRC is now very strong," he said. Japan and China are both becoming each other's single most important trading partners as from last year, he added.
"Although the latest setback had not been good at all for the relationship between the two countries, I don't think that it would seriously undermine the current inter-dependent economic relations. Of course, if this situation were to continue, then further integration might be affected in the sense that the pace of integration might decelerate. Even so integration of the two economies will continue."
Kuroda is staking his future on acceptance at the annual meeting of his initiative to set up a special Office of Regional Integration that will seek to coordinate previous fragmented efforts to integrate Asian economies. This integration will take place in areas ranging from trade and investment and infrastructure to monetary affairs and financial market development. The US, for one, has in the past opposed moves to establish an East Asian Community or to establish an Asian Monetary Fund.
But the ADB president said he is optimistic on this score too. "Regional economic cooperation and integration in Asia is not closed," he said. "Regional economic integration is occurring but most Asian economies are also integrating with the global economy. I think that this will be well accepted not only by regional countries but also by non- regional members of the ADB. As in Europe [with the EU] and North America [with Nafta], regional integration in Asia is good for the global economy."