New tools needed to reduce FX risks: ABAC
The APEC Business Advisory Council (ABAC) on Thursday called for new tools to reduce foreign exchange risks due to concerns about widening interest rate differentials between the United States and emerging economies.  It also urged greater digitisation of the trade process to boost economic integration within the Asia Pacific region. Speaking at the end of a four-day meeting in Hong Kong, Tom Harley, an Australian ABAC member, said the council was studying an exchange rate tool known as a World Parity Unit which might be able to reduce foreign exchange risks. The unit represents an exchange rate between a basket of currencies from developed countries and those from emerging markets. “[So] rather than borrowing in US dollars and just having a single-currency risk, it borrows against a basket of world currencies, and it has the potential to reduce currency risk in cross-border borrowing, particularly for the energy transition, by up to 25 percent,” Harley noted. “We are now working on how it can be implemented... to deal with a critical problem,” he added. The proposal comes as a strong US dollar, due to interest rates that have held steadily higher over a longer than expected period, continues to weigh on currencies in the Asia Pacific region, posing foreign exchange risks.  This concern was shared by Hiroshi Nakaso, ABAC’s Japanese member, who chairs the council’s finance and investment task force. The former deputy governor of the Bank of Japan also called for greater efforts in promoting digitisation of the entire trade process in the Asia Pacific region to enhance economic integration. “Currently many parts of the trade process, if not all, are conducted on a manual or paper basis, such as letter of credit or insurance policy. So this is incurring huge losses, opportunity costs, for the regional economy.”  “The initiatives that I mentioned are intended to digitalise the entire trade process, so that the cost and the time required can be greatly reduced and help regional economic integration,” Nakaso said.  Separately, Frank Ning, a China member who chairs ABAC's sustainability working group, called for a green free trade framework in the Asia Pacific to tackle climate change, noting that business groups in the region also wanted the trade environment to be improved - in the wake of rising Sino-US tensions. “We have a very strong proposal between the Chinese delegation and the US delegation on ABAC to have a sustainable supply chain, which demonstrates the strong will from business to see an improved free trade environment.” “We want to see that back. We do not want to see a confrontational or trade barrier type of policy,” Ning said. Other key proposals include the empowerment of women in trade, boosting women’s participation in green trade and venture capital, noted Julia Torreblanca, the council’s chair for 2024. The council, an advisory body to APEC economic leaders, held a meeting in Hong Kong between April 22 and 25, to promote free trade in the Asia Pacific region, with some 200 delegates in the city for the first time since 2015.