Dear nettimers,

Here is a simple and ingenious scheme which gives you a hint of what may
emerge in the future. It involves creating a regional Asian bond as an
"offshore dollar" intended at once to prop up the Asian credit markets,
help stabilize the American dollar in which all the Asian countries are
heavily invested, and slowly displace control over the international
reserve currency from Washington to an as-yet inexistent pan-Asian
capital market, which the bond would create by its very existence.

The twisted beauty of this plan is that it is proposed by Thaksin
Shinawatra - the deposed former prime minister of Thailand, a neoliberal
businessman, hated by many Thais for his authoritarian police measures,
now living in London where he has fled in the face of charges of tax
evasion!

That particular detail is yet another irony cast at the feet of those
whose highest hopes go to equality and popular democracy. But beyond
that, it also recalls how both the Bretton Woods institutions and the
European Community were created as highly technical economic and
monetary arrangements whose immense historical significance was hidden,
for decades, by a veil of technical complexity. A proposal like
Thaksin's does not say anything about an Asian monetary fund, a common
currency, or anything that would shock people with the thought that an
immense new financial power is emerging. Yet it would have the same effect.

I am not saying Thaksin's proposal will go anywhere. But I am saying
that just such a proposal could have immense significance. Watch the
news for any major innovation in the current structure of Asian economic
relations. The future may be hiding exactly there. Best, BH

****

An Asia bond could save us from the dollar

By Thaksin Shinawatra

Published: October 6 2008 19:37 | Last updated: October 6 2008 19:37

Asia has an opportunity to save itself, and the world economy, from the
crushing excesses of Wall Street. China and Japan, with other Asian
countries holding substantial surplus reserves, should act now to create
an Asia bond to contain the fallout from a weak dollar.

I hope my US friends will not see this as an ungrateful act of
abandoning a ship in trouble. On the contrary, my plan will keep the
ship in service, as it is repaired. This is the best way for countries
that have benefited from the American century to repay their debt.

The prosperity in Asia -- created by US investment and trade -- has
spawned problems for the US. East Asia's current account surpluses have
averaged $400bn over the past decade, while the US current account
deficit runs at an annual average of $800bn. Asian countries, other than
Japan, accumulated the surpluses largely by supplying cheap goods and
services to the US. They can no longer rely on this one major market
given that America's ability to sustain consumer spending is severely
curtailed. Having parked most of their surpluses in the currency that
was most convertible -- the dollar -- Asian countries face the prospect of
losing as much as the country that issued the currency. Most of Asia's
sovereign surpluses are in US dollar-denominated equity and notes and
Treasury bills. Is there a way to protect the value of these as the US
economy finds its feet? Asia's reserves could be turned into Asia bonds
that, without losing their value, could be used to stimulate investment
and trade in Asia.

An Asia bond would not be a self-centred zero-sum game. It could offer
an opportunity for wealth creation across the world. Three billion
Asians want their governments to invest their hard-earned surpluses in
tangible productive capacity that they can see rather than playing with
paper investments, such as esoteric derivatives.

The bond will be denominated in, shall we say, global dollars or
"globars" (if you like the allusion to the shiny metal bars that were
once the universal standard currency). The International Monetary Fund
could play a consultative or managerial role in maintaining the value of
this global or offshore dollar while the national currency of the US
settles down to a level that suits its economic needs.

What happens if the new US administration is not farsighted enough to
agree to a separate standard for external dollars? Asian governments
could still issue these bonds incrementally as they accumulate new
surpluses. China, Japan, Korea, Singapore and Thailand could agree to
pool some of their reserves in a certain ratio into a basket of
currencies to issue a bond. The return on this bond will be the same or
higher than those on US Treasury bills as the issuers of the bond have a
better ability to pay than the US government.

The dilemma for investors is judging political risks in Asia. The
Taliban will continue in Afghanistan and Pakistan but these countries'
role in issuing and managing the Asia bond will be nominal. Another
poison gas explosion in the Japanese underground will not undermine
Japan's capacity to honour its commitments. Risk is relative. I would
rather bet on China's authorities -- who ignored the prediction offered
18 months ago by Hank Paulson, the US Treasury secretary, that they
risked trillions of dollars in lost economic potential unless they freed
their capital markets. That seems wiser than praying to God that the US
soon finds a credible model of economic growth and for regulation of
financial institutions.

To those familiar with bond markets, this may not seem a revolutionary
proposal. It is not. A number of Asian governments issue bonds in their
own currencies. Their quality and performance vary. Asian bond returns,
taken in conjunction with their volatility, compare unfavourably with
their US Treasury counterparts, market by market. However, an aggregate
of Asian bonds gives a more positive picture. Part of the problem is the
historical perception, perpetuated by rating agencies, that Asian
countries are all borrowers, just as the US has become. Now, some of
these countries are there to lend. It is time they reaped the premium
that is theirs as lenders. The value of their loans will be better
protected if they take collective decisions.

Their collective bond could be traded in Tokyo, Singapore and Hong Kong.
This bond would contribute to the development of a healthy capital
market in the region that can remain stable while the US works its way
through its financial crises. The greatest benefit would be that Asia's
surpluses will be recycled into productive assets in Asia.

The writer is the former prime minister of Thailand.
http://www.ft.com/cms/s/0/035db374-93aa-11dd-9a63-0000779fd18c.html