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Romance of the three regions

By Andrew Sheng (chinadaily.com.cn)
Updated: 2008-11-17 10:22

Special Coverage Exclusive: An Asian view of the global financial crisis

Contents:  Preface  A historical inflexion point  The macro question  The micro origins  Lessons for China and Asia  Back to basics  One world, three paths  Status quo  The rise of regional markets  Romance of the three regions  Conclusion

If, as I personally expect, that regionalism will be the outcome of the current crisis, then within the next two decades, the global monetary and financial architecture will be radically different from today.

By then, there will be at least three global reserve currencies contending for hegemony. Notice that I have not specified what the third reserve currency would be.

Within Asia, it could be the Japanese Yen, the Renminbi, the Indian rupee or even an Asian currency that include large components of Korean, Middle East and ASEAN currencies. In Latin America, it could be the Brazilian real or Mexican peso that form the core of their regional currencies.

Given the complex politics in each region itself, it is not clear which and how these currency arrangements will emerge.

Nevertheless, since Asia remains a dynamic fast growing region, there is no doubt in my mind that for regional growth to be stable, some form of monetary cooperation and regional financial market is inevitable.

At that point of time, diversified global portfolios will comprise a more equal distribution of assets at the geographical level, so that the investor is not exposed excessively to only one or two major currencies, but at least three, if not four, global reserve currencies and related assets.

The competition for resources in this more equal environment would offer better choice for investors globally.

To be continued...

The author is chief advisor at the China Banking Regulatory Commission and former chairman of the Hong Kong Securities and Futures Commission.