financial crisis may have shocked world leaders into taking seriously their own commitments to more global co-ordination in economic affairs, but getting from talk to action remains an uphill struggle. This makes progress on regional co-operation all the more pressing. The opinion of Haruhiko Kuroda, president of the Asian Development Bank, that “east Asian countries are well advised to start a serious effort to co-operate” on currencies deserves a hearing.
The East Asia summit, where Mr Kuroda made his remarks, caps a year of advances in cross-border co-operation among Asian and Pacific nations. One – a notch on Mr Kuroda's own belt – was the agreement by ADB shareholders to triple its capital to $165bn.
Another important success was to strengthen the Chiang Mai initiative, whose member nations now share in a $120bn multilateral currency swap agreement. Together with bilateral swap lines this will help countries resist speculative attacks on their currencies, weakening one reason for the region's gargantuan accumulation of official reserves: its determination never again to be vulnerable to the capital flight that laid waste to Asian economies 12 years ago. That makes a rebalanced world economy a bit more achievable.
Welcome as they are, these are baby steps. The $120bn Chiang Mai agreement is a drop in the sea of reserve holdings. On top of China's $2,270bn and Japan's $1,050bn, some $1,000bn more is held by countries such as India, South Korea, Thailand, and Singapore. To make a difference, swap lines should be expanded significantly.
Mr Kuroda's suggestion that Asia co-operate more closely on currencies is a natural next step in regional integration. The swings of the renminbi, pegged to the dollar, have juggled relative prices in the region. South Korean and Japanese exporters with supply chains in China have adjusted by shifting production back and forth. But such “physical hedging” is hardly optimal nor available to all; and the one-half of trade done with other Asian countries suffers from erratic currency movements. Stabler exchange rates may also bring benefits of greater financial integration. If they lowered risk premia, now-shallow domestic currency bond markets would deepen.
The ultimate prize of co-operation would be a China that felt safe to relax limits on renminbi convertibility. But this is a catch-22: so long as Beijing sees more benefit in using its currency to build huge surpluses, Mr Kuroda will get no hearing where it really matters.