Tuesday, May 2, 2017

Japan to join China in weaning Asian economies off the dollar by facilitating direct yen currency swaps

Despite the fact that Japan is lacking a equivalent payments system to SWIFT like China now has, they will soon be joining the world's second largest economy in helping to wean the rest of Asia off the dollar by facilitating direct bi-lateral currency swaps.

Focusing primarily on the ASEAN economies, and jumping in as a competitor to the Yuan's growing dominance in the region, Japan is preparing to introduce a new program that will seek to establish currency swap agreements with most Asian countries that will include allowing them to use the Yen as a currency reserve, and even as a medium of exchange to buy or sell dollars.

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Japan seeks to establish bilateral currency swap frameworks with members of the Association of Southeast Asian Nations as a hedge against tight fund supplies in a financial crisis and also as a counter to the growing influence of the yuan. 
The Finance Ministry will propose the initiative soon. Japan's finance minister and central bank chief will meet with their ASEAN counterparts for the first time in four years, to coincide with the Asian Development Bank's annual meeting starting May 4 in Yokohama. 
Tokyo hopes the initiative will make Asian countries' financial systems and currencies more stable. Its first negotiations will involve Indonesia. 
The swap arrangements would let Japan supply foreign banks and other institutions with yen funds chiefly via the respective country's central bank. Financial institutions could unwind yen holdings under that framework, which may improve liquidity and stem the ripple effect during a financial crisis. 
ASEAN countries could even procure the dollar with the yen, then employ the greenback in propping up their own currencies. 
Japan's move comes as ASEAN members look to wean themselves off the dollar, a trend that could support wider adoption of the yen. In 2015, Vietnam set a zero interest rate on dollar deposits in a bid to encourage the use of other currencies. Indonesia mandates that settlements made inside its borders be in the rupiah. 
Japan also is taking aim at China, which is busy trying to internationalize the yuan. The International Monetary Fund says the yen accounts for 4.21% of foreign currency reserves held by countries, beating the yuan's 1.07%. However, Beijing has entered into bilateral currency swap agreements with Malaysia, Thailand and other Asian countries. Singapore and the Philippines decided to add the yuan to their foreign currency reserves last year. - Nikkei Asia

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