Laws relating to Eurocurrency

: a study of East Asia

Abstract

Currency deposited or transacted outside its issuing country constitutes Natural Eurocurrency. The super-national treatment of certain currency results in Artificial Eurocurrency. The nature of Eurocurrency decides it the predominant component of international mobile fund. Many states have utilized the effect of "drop between laws" to compete for international mobile fund. In the past several decades, Eurocurrency has benefited the impressive growth of East Asia, especially the leading Asiadollar centers. Hong Kong, Singapore and Japan respectively developed their own Eurocurrency related legal systems. Hong Kong represents the integrated financial centers. Singapore segregates its domestic market from the ADM by forbidding Singapore dollar to be transacted in the ACUs. Tokyo, although permitting yen as a currency of denomination in the JOM, is not a place of offshore market for Japanese residents. The PRC has launched the experiment of offshore banking in the three-tier currency regulatory framework. It is certain that the PRC's participation in the market will challenge both the international financial system and the PRC's evolution. The onset of the Financial Turmoil in East Asia demonstrated that the model of segregation could not prevent domestic financial systems from being impacted by international mobile fund. A more efficient anti-crisis mechanism should be composed of the liberalization of capital movements and closer supervision of financial institutes, upon international coordination. The super-national treatment of Eurocurrency enhances the operation risk of the financial systems. Meanwhile, it is unfair to the participants of domestic financial markets and cannot be justified as fair to the participants of the Eurocurrency market. The principle of national treatment should be extended to currency. As a result, the model of integration should replace the model of segregation. In order to adopt the national treatment of currency, an international agreement must be concluded. The integration of Eurocurrency and non-Eurocurrency sectors is to provide a unified basis for further liberalization of financial industry. Deregulation and reregulation may exist simultaneously, functioning in different financial sectors. The resolution of disputes arising out of Eurocurrency transactions centers the allocation of commercial and political risks. The commercial rules are basically straightforward and non-controversial. Efficiency criteria supplement the commercial rules. The rules for political risk are still ambiguous. The commercial rules plus efficiency criteria may be adopted to allocate political risk, but they cannot resolve all of the problems. The draft of unified model laws or core principles under the auspicious of the IMF can be a resolution. The ultimate mission of the laws relating to Eurocurrency is to eliminate Artificial Eurocurrency. But it will definitely take a very long period.

Date of Award	2 Oct 2003
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Guiguo WANG (Supervisor)