Summit decides to follow own pathway towards co-operation

The region's central bankers yesterday shied away from forming an Asian Central Bank along the lines of the Swiss-based Bank for International Settlements (BIS), opting instead for a looser form of co-operation.

The 11 Asian central bankers, who gathered in Shanghai yesterday, said they had 'positive discussions' on setting up a formal institution, but decided at this stage to move towards what they termed a 'virtual secretariat'.

It was understood this would involve members providing and acquiring necessary financial and economic information using an electronic network to ensure each remained appraised of the other's situations.

People's Bank of China (PBOC) deputy governor Chen Yuan said the virtual secretariat was more in line with EMEAP's policy of being a forum for the exchange of views and information rather than a policy-making body.

The idea of forming an Asian BIS was floated more than a year ago by former governor of the Reserve Bank of Australia Bernie Fraser, but was dismissed as 'premature'.

Recent turmoil in the region's currency markets led to renewed calls for formalised co-operation and support between Asia's central banks, although it appeared members were more comfortable for now with a decentralised structure with no clear leadership.

It was understood some members were reluctant to join a binding agreement to support Asian currencies they regarded as less stable than their own.

The one-day meeting also reviewed regional economic conditions with members placing emphasis on asset prices and their implications for monetary policies.

They noted that asset price bubbles could have a significant impact on economic activity, the health of the financial system and inflation.

The governors agreed that: 'Developments in asset prices deserve careful attention.' While acknowledging the economic fundamentals of EMEAP economies were sound, the governors conceded that excessive volatility in the currency markets could undermine monetary and financial stability.

The meeting also received progress reports from two working groups and a study group that was formed at the last meeting.

The two working groups were set to examine ways to strengthen the region's financial infrastructure, including bond, money and foreign exchange markets and how central bank operations were affected by market innovations.

The study group explored ways to pool information on bank supervision techniques.

PBOC governor Dai Xianglong chaired yesterday's meeting. The next meeting will be held in Tokyo on July 14, 1998.