Monetary union: Tokyo urges global currency system

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The Independent Online
THE Japanese Prime Minister Keizo Obuchi is to float the idea of a new international currency system linking the yen, euro and dollar when he visits key European capitals next week.

Mr Obuchi, who leaves Tokyo on Wednesday for an eight-day trip encompassing France, Germany and Italy, is backing the idea of allowing the three currencies to fluctuate within a limit range in order to prevent the huge swings that have rocked financial markets in the past few months.

The idea will almost certainly receive support from European leaders who are hoping that the creation of a new giant currency zone with the euro will prove to be a catalyst for a return to the kind of managed currency system that prevailed in the immediate post-war years until it was ended by the decision to float the dollar in the 1970s.

The chief executive of the Hong Kong Monetary Authority, Joseph Yam, last week proposed the idea of an Asian monetary union along similar lines to the euro, although he admitted that it could take decades to achieve.

Germany's left-wing finance minister Oskar Lafontaine and his French counterpart Dominique Strauss-Kahn have expressed support for a global currency system as a bulwark against speculators.

However, the idea is unlikely to be met with enthusiasm in the US, which is hostile to such interventionist policies, even though similar ideas have been winning converts among academic economists in the US.

Mr Obuchi also wants to see an enhanced international role for the Japanese currency, which at present accounts for just 5 per cent of international trading. That compares with 48 per cent for the US dollar and 31 per cent for the European currencies.

That is expected to increase dramatically with the advent of the euro, which most economists expect will swiftly become a major component of the reserves held by central banks around the world.

In his New Year's address, Mr Obuchi said he was confident Japan would return to positive growth this year. He said the government would make all necessary efforts to achieve its economic growth target of half a percent in the new 1999 financial year which starts in April. This would include a new economic plan which would include efforts to restore the health of the financial system, which is groaning under a mountain of debt, and restart Japan's stalled industrial base.