Central Banks

Japan's currency swap with Thailand, Malaysia a good move for stability: IIF

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The Institute of International Finance (IIF) welcomes the move by the Bank of Japan to sign bilateral currency swap deals with Thailand and Malaysia, saying it would add to stability in the Southeast Asian region.

"I'm all for it. I think supplementing what the [IMF] can do and other institutions is important as long as it doesn't interfere with some of the programs the fund has in place … I think it's such a great idea and I think it helps stabilize the region in times of crisis but having flexible exchange rates is also a shock absorber," IIF's chief executive Tim Adams told CNBC at the sidelines of the IIF Spring Membership Meeting in Tokyo.

The agreements between the central banks of Japan and the two Southeast Asian countries allows them to swap their currencies with U.S. dollars when needed with the size of the facility set at a maximum of $3 billion.

Being the global reserve currency, the dollar tends to run dry in times of financial crisis. Asia experienced the adverse effects of this phenomenon most keenly during the Asian Financial Crisis of the late 1990s.

The deals were reached Friday at a meeting — the first in four years — between the finance ministers and central bank governors of Japan and ASEAN countries at the Asian Development Bank's annual gathering in Yokohama.

Japan already has bilateral swap arrangements with Indonesia, the Philippines and Singapore. At the meeting, it also proposed to ASEAN making it possible to withdraw Japanese yen under the existing bilateral swap deals, should the ASEAN countries request to do so.

That said, Adams told CNBC that emerging Asian economies are in a much better shape compared to the Global Financial Crisis nearly a decade ago and the Asian Financial Crisis in late 1990s. The region has also attracted capital even though interest rates in the U.S. have risen.

"There was a fear late last year and early this year that with the rise in rates in the U.S. and projection of rising rates in the U.S. we'll see massive fly out of capital in emerging Asia, emerging markets. That didn't happen. In fact, we've seen a reversal of flows into emerging markets," he said.

— Reuters contributed to this story