تجارت صادر کنندگان اوراق قرضه برای سبد ارزی مشترک اوراق قرضه گرانتر در شرق آسیا

This paper is to investigate advantages and disadvantages of common currency basket denominated bonds over single international currency denominated ones for bond issuers in East Asia in terms of both foreign exchange risks and liquidity. Our empirical analysis obtained the following results: (i) the currency basket denominated bonds would be able to decrease foreign borrowing costs and their risks in many cases; (ii) the US dollar has the highest degree of liquidity for bond issuers in all of the nine East Asian countries; (iii) bond issuers in East Asia face trade-off between foreign exchange risks and liquidity in choosing currency denomination of issued bonds.

It is said that there are both an abundance of savings in East Asia and profitable investment opportunities in East Asian emerging market countries. However, we have a problem of how efficiently we should match the savings with the investments within East Asia through regional financial markets. One of its solutions may be to establish and activate regional bond markets in East Asia. On one hand, it is a problem that especially borrowers in East Asia have been facing foreign exchange risks because they have had debts denominated in terms of a foreign currency in borrowing money from foreign countries. They would face foreign exchange risks if bonds were denominated in the regional bond markets in contrast with local bond markets. Bond issuers would have the problem that is associated with the foreign exchange risks even if we established the regional bond markets. It is usual for bond issuers to select an international currency as denomination currency of the bonds when they issue them in international bond markets. The US dollar is dominant as an international currency in the world economy. If a local currency of the bond issuers is different from the denomination currency in the issued bond, they face foreign exchange risks that are volatility of exchange rate of the local currency in terms of the denomination currency in the issued bond. Risk-averse bond issuers prefer smaller foreign exchange risks, given expected rates of return. It might be more desirable for them to select any other currency in issuing from a viewpoint of foreign exchange risks. However, bond issuers should face another problem that is associated with liquidity because network externalities might work in bond markets in terms of liquidity. Accordingly, they might face trade-off relationship between foreign exchange risks and liquidity when they issue regional bonds as well as international bonds. It is discussed whether the monetary authorities in East Asian countries should make regional cooperation in a field of exchange rate regimes and policies and create a common currency basket in order to prevent another currency crisis in the future (Bénassy-Quéré, 1999; Ito, Ogawa, & Sasaki, 1998; Ogawa & Ito, 2002; Ogawa, Ito, & Sasaki, 2004; Williamson, 2000). It is suggested that a common currency basket as a region currency is needed for the regional cooperation. It is an implication for the Asian Bond Market Initiative that establishing currency basket denominated bond markets should be more desirable for borrowers or bond issuers in East Asia. This paper is to investigate both advantages and disadvantages of choosing a common currency basket over a single international currency for bond issuers in East Asia by taking into account both foreign exchange risks and liquidity. This paper is composed of the following sections. The following section focuses on foreign exchange risks to investigate what kind of currency is desirable for bond issuers in term of foreign exchange risks. The third section considers about liquidity in regional bond markets from a viewpoint of denomination currency. The fourth section is a summary and conclusion of this paper.

This paper investigated advantages and disadvantages of choosing a common currency basket over an international currency as a denomination currency for bond issuers in terms of foreign exchange risks and liquidity. Here, a common currency basket was regarded as a regional currency according to some of the earlier literature. Performance of the currency basket denominated bonds was compared with that bonds denominated in terms of the three major currencies that include the US dollar, the euro, and the Japanese yen. Issuing the currency basket denominated bonds has the second lowest foreign exchange risks of foreign borrowing costs in Thailand, the Philippines, Indonesia, and Korea. The foreign exchange risks are smaller than those in the case of issuing the US dollar denominated bonds. Moreover, currency basket denominated bonds would, in general, reduce the foreign borrowing costs for bond issuers in all of the East Asian countries. Especially for bond issuers in the dollar-pegging countries, the foreign borrowing costs of the currency basket denominated bonds are lower than those of home currency denominated bonds. Thus, issuing the currency basket denominated bonds would contribute to decreasing the foreign borrowing costs and their foreign exchange risks for bond issuers in East Asian countries. As for the shares of currency basket, we investigated the two types of basket shares which based on trade weights. One is the common basket share for bond issuers in all of the East Asian countries while the other is the country-specific basket share for bond issuers in each of the East Asian countries. The volatilities of the currency basket denominated bonds with the common basket share based on the trade-weight II are the lowest for bond issuers in most of the East Asian countries except for Indonesia and Korea. On the other hand, the means of their foreign borrowing costs are the lowest when they issue the currency basket denominated bonds with the country-specific basket share based on the trade intensity. Thus, issuing the currency basket denominated bonds would contribute to decreasing foreign borrowing costs and their foreign exchange risks in many cases. However, the US dollar denominated bond is still the best choice for bond issuers in the dollar-pegging countries. These results suggest that it might be difficult to fix a common share of currency basket across the nine East Asian countries. In terms of liquidity, data on the bid–ask spreads of swap transactions shows that the US dollar has the highest degree of liquidity for bond issuers in all of the nine East Asian currencies. However, the differences between the US dollar and the currency basket are not so large especially for 3 and 6 months swap transactions though the differences are large for 1 month swap transactions. Accordingly, it is true that bond issuers in East Asia face trade-off relationship between foreign exchange risks and liquidity when they issue the currency basket denominated bonds. Although the currency basket denominated bonds would contribute to decreasing the foreign exchange risks, bond issuers might prefer the US dollar denominated bonds to the currency basket denominated bonds as long as they care about liquidity rather than foreign exchange risks. When we used forward swap bid–ask spread a measure of liquidity, we found that the forward outright deals of major East Asian currencies are less expensive to trade recently. In our analyses, we have to say that the US dollar denomination in issuing bonds provides the highest degree of liquidity due to the US dollar’s dominance in the world financial markets and that the US dollar denominated bonds are still the best choice especially for bond issuers in the dollar-pegging countries in East Asia. However we confirm that the currency basket denominated bonds would contribute to reducing foreign borrowing costs and their foreign exchange risks in many cases. In order to activate regional bond markets and establish more solid base for intra-regional capital flows in East Asia, we should establish markets for regional bonds denominated in terms of a common currency basket.