China vows to strengthen regional financial stability with ASEAN

China and members of the Association of Southeast Asian Nations (ASEAN) should strengthen cooperation to safeguard regional financial stability amid recent currency depreciation in some Asian countries, China's deputy central bank governor said Wednesday.

Concerns about the effects of a pullback from quantitative easing by the US Federal Reserve have weighed on emerging economies, which have been suffering from capital outflows, currency depreciation and weakening stock markets, Yi Gang, deputy governor of the People's Bank of China, said at the China-ASEAN summit on financial cooperation and development held in Nanning, capital of South China's Guangxi Zhuang Autonomous Region.

With Asian currencies including the Indian rupee, the Indonesian rupiah and the Malaysian ringgit witnessing declines of 5-20 percent against the US dollar this year, there are growing concerns that an Asian financial crisis similar to the one in 1997 may be brewing.

"A potential financial crisis in emerging markets is highly possible, as there is increasing expectation of an appreciation in the US dollar," Liu Dongliang,

a foreign exchange analyst at China Merchants Bank, told the Global Times Wednesday.

Records show that every time the US dollar has entered an appreciation cycle, it has led to difficulties in emerging markets, such as the Latin American debt crisis in the 1980s and the Asian financial crisis in 1997, Liu said.

Lessons that can be learned from the Asian financial crisis include reducing excessive dependence on foreign capital inflows and use of the US dollar in trade settlement, Cao Yuanzheng, chief economist at the Bank of China, said at the same summit.

"China is willing to continue to work with the ASEAN members to strengthen the multi-layer regional financial security network," Premier Li Keqiang said in a keynote speech at the China-ASEAN Expo Tuesday.

Yi suggested that China and ASEAN could safeguard regional financial stability through the Chiang Mai Initiative, a multilateral currency swap arrangement among China, Japan, South Korea and the 10 members of ASEAN.

"The Chiang Mai Initiative and further expansion of currency swaps could certainly help in containing a crisis," Tommy Ong, senior vice president of DBS Bank, told the Global Times Wednesday.

Countries that have a current account surplus can help those that have thinner foreign exchange reserves, Ong noted, so the countries might not need to seek help from the US or the IMF.

To ensure regional financial stability, it might also be worth considering the establishment of an Asian monetary fund, he suggested.

Ong also played down fears of another Asian financial crisis.

In 1997, the Thai baht tumbled after the Thai government ran out of foreign reserves, which meant it was no longer able to peg the currency to the US dollar, Ong noted.

"An Asian financial crisis that involves widespread currency devaluation, equity and bond market collapse and bank runs is highly unlikely, as most Asian currencies are floating freely nowadays," he said.