Shades of Chiang Mai as BRICS unveil currency fund

David Loevinger, a former senior US Treasury official, says recollections of the Chiang Mai Initiative flashed through his mind when the largest developing countries unveiled a US$100 billion emergency fund last week.

In the 13 years since Asian countries created what they called an alternative to the International Monetary Fund by pooling together US$240 billion to help support their currencies, not a penny has been drawn from the Chiang Mai kitty.

"It's easy to announce the intention," Loevinger, who served as the Treasury's China affairs co-ordinator from 2009 to last year and is now an emerging-markets analyst at TCW in Los Angeles, said this week. "It's more difficult to make [it] operational."

Brazil, Russia, India, China and South Africa are forming their own lender of last resort as speculation the US will scale back monetary stimulus sparks the worst emerging-market currency selloff in five years.

The rand has tumbled 15 per cent this year, while the rupee touched a record low last month and the real reached a four-year low before rebounding in the past two weeks.

Implementation of the fund might be undone by central bankers' aversion to taking on risk, particularly as investors flee developing countries' assets, Loevinger said.