Japan, Thailand Expand Currency Swap Pact

July 10, 2007
Pact is part of effort to prevent future financial crises.

Japan said July 10 it had doubled the amount of foreign currency reserves it makes available to Thailand to shield against a possible financial crisis. Under the bilateral arrangement, Japan will now offer up to $6 billion from its foreign exchange reserves to Thailand in the event of a currency crisis, a finance ministry statement said. Previously it had made up to three billion dollars available in exchange for Thai baht.

Thailand for its part will continue to provide up to three billion dollars to Japan in exchange for Japanese yen if needed.

The pact is part of the Chiang Mai Initiative of bilateral currency swaps set up by Southeast Asian nations plus Japan, China and South Korea in May 2000 as part of efforts to prevent a repeat of the 1997 East Asian financial crisis. The regional meltdown began in July 1997 when Thailand was forced to abandon its fixed exchange rate after coming under massive speculative pressure.

The 1997 move drove down the Thai baht 18% overnight, triggering currency devaluations across Asia and prompting the region to deepen its economic ties to try to reduce the risk of further financial chaos.

Asia now holds the bulk of the world's foreign reserves at $2.7 trillion, led by China, which alone has more than one trillion dollars.

Asian finance ministers agreed in May to pool part of their huge forex reserves to enable a country to borrow foreign currency from another more quickly until a crisis passes.

Copyright Agence France-Presse, 2007

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