Opinion: 'China dollar' a feasible step
( 2002-06-27 10:24) (1)
Is it possible to start currency integration across the Taiwan Straits by setting up a "China dollar" zone? And if so, could the move be the start of a step-by-step push toward the currency integration of Asia, to finally establish an "Asia dollar" system?
The "China dollar" could give the Chinese people an opportunity to make their own contribution to the financial integration of both Asia and the world.
The euro has been the single currency of 12 of the European Union (EU) member states since the first day of 2002. The birth of the euro tells us that the force of financial globalization is irresistible.
Pushed by the challenge of euro, the US dollar, the Canadian dollar and the Mexican dollar may consider integrating, to create the "America Dollar," a progression of the free-trade zone that has already been established in the region.
Which begs the question, what kind of financial integration will there be in Asia?
Sooner or later, the "Asia dollar" will appear, though it will most likely arrive by a different path.
The first step could be to make a "China dollar" the single currency for China's mainland, Taiwan, Hong Kong and Macao.
Compared with the euro, creating the "China dollar" would be easier in some respects.
For example, unlike euro which is printed with five official EU languages, only one language, Chinese, is needed for the "China dollar."
Also, the establishment of a "Central Bank of China," like the establishment of the Central Bank of Europe to issue the euro, would also likely be acceptable to the majority of the people on the mainland, and in Taiwan, Hong Kong and Macao.
Creating the system for a "China dollar" might be a feasible step toward an "Asia dollar" and finally toward global currency integration.
While the Chinese mainland, Taiwan and Hong Kong are at different stages of economic development, a highly complementary industrial structure has been formed and various channels for economic and trading co-operation have been established between them.
The gaps between the coastal area of southeast Chinese mainland, Taiwan, and Hong Kong are being reduced quickly.
Signs of comprehensive co-operation in the financial industry have already appeared. With both sides of the Straits now members of the World Trade Organization (WTO), the unbalanced trade situation between them will gradually change.
Taiwan's financial industries like banks, securities and insurance have been landing on the mainland. And Hong Kong, as an international financial centre, plays a very important role in the financial market. Therefore, there exists a practical basis for the creation of a new currency system.
The mainland would have to give part of its financial market to Taiwan and Hong Kong. Due to the huge economic scale of the mainland, the impact would not be serious.
Regarding politics, since it is in line with the One China principle, it would be no problem for the mainland to accept the "China dollar."
As for Hong Kong, with its developed financial industry, the creation of a "China dollar" zone would provide it with a larger market. The financial talents of Hong Kong would also help to promote the mainland's financial reform which in turn would contribute to the stability of the mainland's financial system.
Macao would benefit from the "China dollar" as well since a single currency would be more convenient for tourists whose consumption is one of Macao's major sources of income.
The "China dollar" would be good for Taiwan, too.
Having faced several financial crises since 1997, quite a few wise people in Taiwan's financial circles have realized that regional financial integration is necessary to prevent such crises.
Enlarging the scale of the currency market, a "China dollar" would be resistant to external financial attack, which could improve Taiwan's financial stability.
In addition, Taiwan's financial industry is more developed than the mainland's. Therefore Taiwan's financial talents would have more opportunities to use their knowledge with the birth of a "China dollar."
The separatists in Taiwan could be upset if Taiwan and the mainland meld their currency. However, if left outside the regional integration, Taiwan would face greater risk of financial crisis.
In fact, it is the possibility of financial crisis rather than persuasive remarks that is most likely to push financial integration.
Because it took 40 years for the euro, it would not seem long if it takes 8 or 10 years to introduce the "China dollar" first and the "Asia dollar" later. But the timeline for the birth of the "China dollar" depends on the development of the international financial market.
Some people think that currency integration should happen only after the integration of economies, administrative systems, social systems, judicial systems, etc.
However, despite the existence of differences in language, religious belief, social structure and cultural tradition between the EU states, the euro has been created and accepted. This demonstrates that such differences would not stand in the way of creating a single currency.
The fear of financial crisis gives the idea of financial integration momentum. Frequent financial turbulence in the past decade sped the birth of euro.
Financial crises, with increasingly serious impact, have been taking place more and more frequently in areas outside Europe, such as Asia, Eastern Europe and Latin America. If this trend continues, momentum for creating a "China dollar" and an "Asia dollar" will gain strength.
[The author is a professor with the Lingnan Institute of Zhongshan University.]
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