New State of Financial and Capital Markets in East Asia Cross-Border Bonds towards Asian Currency Basket Denominated Bonds

The Chairman's Statement of the Second East Asian Summit held in January 2007 included the agreement for the study of economic integration of participating countries, and for close cooperation in various financial markets to achieve continuous and stable economic development. This paper examines what East Asian financial and capital markets should be in the light of the analysis of the present situation, and also seeks the possibility of issuance of Asian currency basket denominated bonds as one of the symbolic challenges toward the future. Firstly, even in the case of the recent data (as of the end of 2006) on the I-S balance in the East Asian sovereign and quasi-sovereign states, excess savings further expanded; so there is an urgent need to make effective use of the savings funds for intra-regional investment. Secondly, this paper summarizes the current issues relating to local currency bond markets in East Asian states and cross-border bond markets, which are both expected to play an important role in East Asian financial and capital markets in the future. Thirdly, this paper deals with the history of EUA (European Unit of Account) bonds and ECU (European Currency Unit) bonds as a forerunner of the issuance of similar bonds. That history will give us a good illustration when we come to examine what East Asian financial and capital markets should be. Fourthly, while referring to the European cases, this paper deals with the following matters: why should these kinds of cross-border bonds develop further into Asian basket currency denominated bonds in the future and what steps should be taken to achieve this? Finally, this paper cites, as case studies that support the rationale, recent cross-border bonds and basket funds as well as the comprehensive cross-border asset-backed securities (ABS) issuance model presented by the Japan Society of Monetary Economics and others in October 2003, summarizes their significance, and the issues to be resolved in the future.