Asia was adversely affected by the global financial crisis not only because of its dependence on trade, but also because of its heavy reliance on the US dollar for regional and international transactions. As Asia’s role in the global economy expands further, its dependence on the US dollar is bound to increase, raising even more its vulnerability to future liquidity shocks. The use of regional currencies for bilateral trade settlement could reduce such vulnerability.

The renminbi trade settlement scheme piloted between the People’s Republic of China and Hong Kong, China demonstrated that the existence of appropriate financial infrastructure could reduce the relatively larger costs of bilateral currency transactions compared with triangular transactions through the US dollar. This paper proposes that extending the trade settlement scheme to the rest of Asia and appending a government bond payment and securities settlement system could be a practical solution to international monetary system reform and the diversification of settlement currencies.

Part of Series

In December 2012, the Asian Development Bank, CIGI and the Hong Kong Institute for Monetary Research co-hosted a conference in Hong Kong, China. The papers in this series, authored by esteemed academic and policy experts, were presented at the conference and were subsequently revised. These working papers are being published simultaneously by all three partners.
  • Changyong Rhee is chief economist, and officer-in-charge of the Office of Regional Economic Integration, at the Asian Development Bank (ADB). He is the chief spokesperson for ADB on economic and development trends, and oversees the development of strategies and approaches to promote regional cooperation and integration. 

  • Lea Sumulong is senior economics officer at the Economics and Research Department (ERD) of the ADB. In her current capacity, she provides support to ERD’s research projects and contributes to its flagship publications and knowledge products. She has over 20 years of experience in economic research and has previously lectured at the University of the Philippines.