Singapore, Feb 6: A proposal to use the Singapore dollar as a common trading currency between south-east Asian countries is unrealistic and likely to encounter resistance from several quarters, analysts and currency dealers said on Friday.The Singapore dollar gained sharply on Thursday after the Thai Bankers Association (TBA) said it supported its use as a common currency for trading within the nine-member Association of Southeast Asian Nations (Asean).
TBA president Olarn Chaipravat said such a move would help curb the region's demand for US dollars, removing pressure on Asian currencies which have depreciated substantially since Thailand floated its baht in July.
But analysts said Singapore's economy was too small and not representative enough of the region for such a proposal to work.
"Singapore, although it's a major trader, is a very small economy. Hence the amount of Singapore dollars out there is not that great," said Simon Mahadevan Flint, senior emerging markets economist at research houseI.D.E.A.He said the prices of tradable goods tended to be quoted in hard currencies, like the US dollar.
"If the Americans are willing to pay more hard currency for something, why would Malaysia sell Thailand oil or Thailand sell rice to Indonesia if they can get twice as much money from overseas," he said.
He said the Monetary Authority of Singapore (MAS), the de facto central bank, was unlikely to warm to the proposal as it has long resisted the internationalisation of Singapore's dollar.
"It's interesting that it's coming at a time when they'r overhauling their financial system and may be tempted to try to internationalise the Singapore dollar," Flint said.
"But I don't think this would be an intelligent way of doing it," he added.
The MAS had no immediate comment on the proposal.
Dealers said the MAS appeared to have intervened in foreign exchange markets on Thursday and possibly again on Friday to curb the Singapore dollar's sudden rise.
It reached a high of 1.6505 to the US dollar inFriday afternoon trade, a 2.5 per cent rise from its Thursday levels, as funds and investment houses unwound long US dollar positions.
"I don't think they want the Singapore dollar to be the currency of trade because for no benefit of ours, we'd have the Sing dollar appreciating," a US bank dealer said.
"It's going to make us expensive and it doesn't really benefit us," she added.
Another regional currencies dealer said such a move could also prove inflationary for other countries in the region.Analysts and dealers said other Asean leaders might also resist the proposal, notably Malaysia's prime minister Mahathir Mohamad who has proposed the grouping use local currencies in regional trade.
Mahathir, on a tour of southeast Asian countries to promote the use of regional currencies in intra-regional trade, said on Friday Thailand had agreed to his proposal.
"I don't see someone like Mahathir losing sovereignty of their own currency and agreeing to use the Singapore dollar as a trade currency," the USbank dealer said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
