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O 040621Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0723
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE

UNCLAS BEIJING 004121 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: CN ECON EFIN KR PREL JA
SUBJECT: ASEAN+3 NATIONS MAKING LITTLE PROGRESS ON CURRENCY 
SWAP ARRANGEMENTS 
 
¶1. (U) Summary. Despite public announcements at the ASEM 
Summit of an $80 billion swap arrangement, ASEAN 3 nations 
were still discussing the multilateralization of currency 
swaps as part of the Chiang Mai initiative, and important 
elements are still unresolved. There is still no consensus on 
key elements on how to multilateralize the arrangement, 
including whether members should contribute funds into a pool 
or whether the multilateral arrangement would simply 
coordinate bilateral loans and whether claims from a pool 
would take precedence over bilateral claims. China and Japan 
currently are extending bilateral currency swaps with South 
Korea of about $4 billion each, but a People's Bank of China 
official characterized these as primarily symbolic gestures. 
The official was also surprised to hear that the US Federal 
Reserve had announced it would extend currency swaps of up to 
$30 billion to South Korea and several other countries, 
commenting that it appeared that the Fed was now playing the 
role of the central bank of the world. End Summary. 
 
¶2. (U) People's Bank of China International Department Deputy 
Director General Jin Zhongxia on October 30 told Finance 
MinCoun and econoff that, despite public announcements at the 
ASEM Summit of an $80 billion swap arrangement, ASEAN 3 
nations were still discussing the multilateralization of 
currency swaps as part of the Chiang Mai initiative, and 
important elements are still unresolved. (Note. The Chiang 
Mai initiative was created in 2000 to establish a network of 
bilateral currency swap agreements among ASEAN 3 nations. 
Since 2007, discussions have focused on the 
"multilateralization" of bilateral currency swaps whereby 
resources would be pooled rather than lent solely on a 
bilateral basis. End note.) Jin noted that at the May 2008 
ASEAN 3 finance ministers meeting, participants agreed that a 
multilateral currency swap fund would be capped at $85 
billion, with the "plus 3" contributing 80% of the funds and 
the ten ASEAN countries contributing the remaining 20%. 
 
¶3. (U) According to Jin, there is still no consensus on key 
elements on how to multilateralize the arrangement such as: 
1) setting up a surveillance body; 2) participation of the 
Hong Kong monetary authority; 3) whether members should 
contribute funds into a pool when needed to on-lend to 
another member or whether the multilateral arrangement would 
simply coordinate bilateral loans; and 4) if loans were made 
from a pool, whether the pool's claim would take precedence 
to bilateral claims. Jin made clear that members would only 
provide funds on a contingent basis, rather than contribute 
official reserves into a standing fund. Jin noted broad 
consensus to continue the policy that only 20% of the funds 
each member is eligible to draw could be drawn on without an 
IMF program. However, he noted that under the existing Chiang 
Mai Arrangement, members should now be able to draw all of 
the funds from bilateral swaps if they draw on the IMF's new 
Short-Term Liquidity Facility. 
 
¶4. (U) When asked if ASEAN 3 members are considering 
extending finance through the bilateral swaps before 
agreement on a multilateralization of the Chiang Mai 
Arrangement to mitigate financial stress, Jin noted that 
China's and Japan's bilateral currency swaps with South Korea 
are both only around $4 billion, which Jin characterized as 
primarily symbolic gestures and too small to have a 
meaningful impact on financial market sentiment. 
 
¶5. (U) Jin was surprised when informed that the US Federal 
Reserve had announced it would extend currency swaps of up to 
$30 billion to South Korea and Singapore (along with Brazil 
and Mexico). Jin said they represented a significant shift 
away from the Fed's traditional focus on US domestic 
conditions and it was now playing the role of the central 
bank of the world. He said PBOC is interested in learning 
more about the tenor, terms, and conditionality of the Fed's 
swaps and wondered whether the Fed was now "competing" with 
the IMF to provide balance of payments support. 
 
RANDT