"Asian Markets Expect Fight for Euro" -
By THOMAS WAGNER
Associated Press Writer
Wednesday December 23
TOKYO (AP) -- Asian currency markets have been the scene of many wild battles -- witness the devaluations that threw the region into financial crisis -- but the next big fight may start off quietly.
Thanks to global time zones, traders in Asia will have the first chance to carry out foreign exchange dealings in the European Union's new common currency, the euro, after its Jan. 1 launch.
The first dealings are likely to be cautious, analysts predict, as investors try to decide whether euros should be worth slightly more or slightly less than the world's other two big currencies: the dollar and the Japanese yen.
All eyes will probably be on what happens later on the first trading day in London and New York. The euro will technically be launched by 11 EU nations on New Year's Day, which falls on a Friday, so it won't be traded on financial markets until the following Monday.
But even if the euro gets off to a slow start in Asia, the trading eventually is expected to intensify into a bitter competition among
its top foreign exchange markets -- Tokyo, Singapore and Hong Kong -- as they try to dominate the trade.
Countries such as China also are expected to use the euro to diversify foreign reserves now held in dollars, which could eventually reduce the American currency's dominance in Asia.
For weeks, banks in the region's three financial centers have been working hard to prepare themselves to quote firm euro-dollar and euro-yen foreign exchange rates when the new currency begins trading in Asia.
In addition, some banks, especially European ones, plan to create markets with a range of euro-denominated foreign exchange products, such as euro-British pound and euro-Swiss franc. Britain, although a member of the 15-nation European Union, is opting out of the first round of the euro club. Switzerland is not an EU member.
To prepare for the new market, the banks have had to train staffs, educate clients, establish euro-denominated accounts and adapt and test their computer systems.
''The competition among Singapore, Tokyo and Hong Kong will be intense,'' said Miron Mushkat, a vice chairman of Indocam Asia Asset Management in Hong Kong. ''In the present climate, with financial institutions dealing with the crisis, the euro is likely to be seized upon as a new opportunity.''
Of the three, Tokyo currently boasts the biggest foreign exchange market, trading an average of $149 billion in currencies a day, according to a recent Bank of International Settlements survey. Trading averaged $139 billion a day in Singapore and $82 billion in Hong Kong.
Although Japan's market is bigger than Singapore's, the Southeast Asian city state is rapidly gaining ground.
The value of foreign exchange trading in Singapore grew by 32 percent from 1995 through 1998, the survey said, while Tokyo's volume dropped 8 percent and Hong Kong's fell 13 percent.
While Tokyo naturally focuses on yen trading, Singapore offers a far more liquid market in the German mark. And that could give it an edge in the euro, as it replaces the mark.
Singapore's de facto central bank, the Monetary Authority of Singapore, also seems determined to make the city an attractive
center of euro trading.
While the three currency markets compete for dominance, bankers will be studying the euro's potential for being accepted in the region as a reserve currency.
China has announced it may convert a proportion of its $145 billion worth of foreign exchange reserves into the euro. And other Asian central banks are expected to follow suit eventually.
''It goes without saying that the bias toward the U.S. dollar in Asia is likely to diminish over time,'' said Mushkat. ''The only question is how long that will take and how far it will go.'' |
