Mahathir urges world currency for exchange rate stability

Asian Economic News, June 11, 2001

TOKYO, June 8 Kyodo

Malaysian Prime Minister Mahathir Mohamad urged the introduction of an international currency Friday that would serve as an anchor of countries' currencies to reduce exchange rate volatility and nip future financial crises in the bud.

''An international currency should be created which belongs to no one country,'' he said in a speech. ''Rates of exchange should be based on this one currency, which can be used for payment of all international trade.''

Mahathir floated the idea as he denounced currency speculators for causing financial and economic crises in East Asia and elsewhere in the past several years.

Noting earnings in this international currency must be immediately deposited with a nation's central bank, he said the hard currency reserves must be held in this currency only and not a basket of currencies.

Mahathir, who is also Malaysia's acting finance minister following the resignation of Daim Zainuddin last week, also said an international central bank would have to determine the proper exchange rates among local currencies along with a panel of national central banks.

''Should there be a need to devalue against the international currency, a panel of central banks and the international bank should determine the proper exchange rate,'' he said.

The Malaysian leader's comments came a day after he pointed to the need for East Asian countries to forge a regional fixed exchange rate and monetary union over the long haul.

In a speech in Tokyo on Thursday, he said the so-called Chiang Mai Initiative involving 13 East Asian nations should be the basis of an enhanced regional financial and economic cooperation.

Under the scheme, the countries are committed to creating a network of currency swaps to help protect them against the sorts of speculative attacks that led to the Asian financial crisis in 1997 and 1998.

As a means of expediting regional cooperation, Mahathir also repeated his support Thursday for the idea of an Asian Monetary Fund (AMF) to provide liquidity to regional economies in difficult times.

Japan proposed establishing the AMF in 1997, but the United States and the International Monetary Fund (IMF) opposed it as they feared Asia would avoid the harsh belt-tightening the IMF insists upon in return for emergency lending.