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February 25th 2005

ASEAN nations expand currency swap agreement

The 10 members of ASEAN, and economic organization of Asian countries, signed a comprehensive swap agreement today. The purpose of the swap agreement is to guarantee members with USD that they can use to pay off their debts. Currency swaps allow nations to exchange one currency for a different currency at a fixed exchange rate, on a predetermined date in the future. In this case, the signatory ASEAN nations retain the right to exchange their domestic currencies for USD at 3 month intervals, which they can use to pay off USD denominated liabilities. The new agreement is really just an expansion of a rudimentary version, signed after the Southeast Asian Economic Crisis of 1997-98. During this period, Asian countries witnessed the rapid devaluation of their currencies, which prevented them from paying interest on outstanding debt, and led to the temporary collapse of their national economies. ABS-CBNnews.com reports:

But even in an [economic crisis] contagion, some country may have stronger a reserve position and afford to still help other countries. We’re ASEAN members [who] have committed financial resources to help each other. That is the most important idea of the swap,” said the president of the Philippine’s Central Bank.

Read More: ASEAN 5 extend $1-B currency exchange

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Posted by Adam Kritzer | in Emerging Currencies | No Comments »

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