Asian authorities should boost the efficiency of their own currency markets in order to reduce dependency on the US dollar in the foreign-exchange market and ultimately reduce the cost of trade within the region, according to Chalongphob Sussangkarn, president of the Thailand Development Research Institute.

Speaking yesterday at a symposium organised by the Bank of Thailand, Chalongphob said while local currencies remain weak, Asian countries would be dependent on the dollar when trading with each other.

Currently Thai exporters cannot receive payment from Japanese importers directly in yen, as the cost is too high. Payment is therefore made in dollars.

The cost of conversion between the baht and the dollar is three times lower than that between the baht and the yen. Due to the higher conversion cost, there is no direct market between the baht and

the yen, Chalongphob said.

"This has cost us. We want Japan to invest in the region, but the hedging market is not complete enough," he said.

Therefore, he added, there should be a study of how to boost the local foreign-exchange market in order to reduce dependency on the dollar. If successful, Thai exporters would be able to trade with Japanese importers converting their own currencies directly, helping to reduce the overall cost of trade.

To Chalongphob, this suggestion is the "third best" solution to the question of how to create financial integration in the region, and reduce the cost of trade in the Asian region.

In his view, the best solution, which is difficult to implement, was proposed by Japan earlier: to implement an East Asian Currency, or a yen bloc or currency basket. However, historical differences, and the fact no country would want to give up its currency, would present difficulties with this idea.

The second best solution, proposed by Chalongphob, is to keep the dollar and yen as stable as possible. This requires cooperation between Asian countries, whose foreign reserves are currently as high as 60 per cent of total world international reserves. This would allow Asian countries to lead the world currency market. However, so far there has been a lack of proper cooperation between Asian authorities.

The baht rose to a three-month high yesterday morning of Bt37.5-Bt37.58 to the dollar, mainly due to a weak greenback.  The appreciation was also the result of foreign inflows into portfolio investment in the Thai equity bourse.

Jiwamol Kanoksilp,

Anoma Srisukkasem

The Nation