Michael Ignatius Ho, the Hong Kong-based Asia director at OurCrowd, Israel’s largest venture capital platform, said central banks around the world were increasingly diversifying their foreign exchange holdings, but any rebalancing of monetary policy power would prove “tough” because very few countries were able or willing to pay the cost of maintaining their own currency as the world’s reserve currency.

Edwin Lai, a professor of economics at the Hong Kong University of Science and Technology, said the internationalisation of the yuan as a replacement for the US dollar would “be a long term plan rather than something that will come about very soon – say in 10 to 20 years’ time”, because there was a “very high degree of persistence” in the status of a dominant currency in the international monetary system.

He Weiwen, a senior fellow at the Centre for China and Globalisation, a think tank based in Beijing, said the yuan accounted for just 1.9 per cent of global payments, compared with more than 40 per cent for the US dollar.

Less than 3 per cent of the world’s currency reserves were held in yuan, compared with 58 per cent for the US dollar, even though, according to the International Monetary Fund (IMF), that level had fallen by more than 13 percentage points over the past two decades.

“It’s a long way to go for the yuan,” He said, while adding that the proposed Asian monetary fund could help yuan internationalisation by, for example, cooperating with the Arab Monetary Fund, which was set up along similar lines.

Lai said the yuan would “probably feature prominently in Asian special drawing rights”, which might be established for lending to members of the Arab Monetary Fund, but the pace of yuan internationalisation was slow due to the lack of breadth, depth and liquidity in China’s still-immature financial market, and country’s “rather closed capital account” could further retard the process.

Ho said the establishment of an Asian monetary fund would increase the discourse power of Asian countries and be “one of the many steps” towards de-dollarisation and yuan internationalisation, but “ultimately buyers have the power instead of sellers, unless sellers have unique offers that buyers can’t resist”.

He said Asia, excluding Japan, had 21.85 per cent of the votes at the IMF, while the US alone had over 16.5 per cent.

Ho said any changes in IMF quotas, national contributions to the body that reflect a country’s position in the global economy, required the support of 85 per cent of votes, which meant the US had effective veto power.

02:59

BIS head Carstens: China’s clearing and settlement service is no substitute for global Swift system

BIS head Carstens: China’s clearing and settlement service is no substitute for global Swift system

The idea of creating an Asian monetary fund was spawned in the wake of the Asian financial crisis in 1997, but “it failed to bear fruit at that time”, according to the Asean+3 Macroeconomic Research Office in Singapore.

Building an Asian financial safety net had “gained wide acceptance” in the international community over the past 25 years, it said, and was now embodied in the form of the Chiang Mai Initiative Multilateralisation, which was launched by the Association of Southeast Asian Nations (Asean) Plus Three grouping in 2000.

Its importance was highlighted after the global financial crisis in 2008, the research office said, when “the vulnerability of the region to [US dollar] liquidity shocks” was revealed.

Asean Plus Three comprises the 10 Association of Southeast Asian Nations member states – the Philippines, Indonesia, Malaysia, Singapore, Brunei, Thailand, Vietnam, Cambodia, Laos and Myanmar – plus Japan, China and South Korea.

‘Like installing a firewall’: how policy support could make yuan global anchor

The research office said the Chiang Mai Initiative Multilateralisation facility was a network of bilateral swaps between regional central banks.

The loans provided through the swaps had originally only been in US dollars, but that had recently been broadened to include the use of other currencies, including the yuan and Japanese yen, on a voluntary basis.

Jayant Menon, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore, said that diversifying payment options – including new currencies and direct digital payments – was “a welcome development” in managing risk.

But that could be done without setting up a new institution like an Asian monetary fund.

“We already have the Asean+3 Macroeconomic Research Office based in Singapore, and it could be strengthened and can help facilitate this diversification process, which is currently mainly private-sector driven,” he said.

Amitendu Palit, a senior research fellow at the National University of Singapore’s Institute of South Asian Studies, said an Asian monetary fund was “a doubtful starter” because the US dollar’s strength might not be a good enough reason for setting it up.

“However, it is quite possible that some Asian countries reach a broad understanding between themselves on wider invoicing of trade and other commercial transactions in non-dollar currencies,” he said. “The yuan is a possible alternative in this regard.”

Palit said the yuan was not the only currency to benefit, with Malaysia also recently deciding to conduct trade in Indian rupees.

Zha Daojiong, an international political economy professor at Peking University, said the topic of an Asian regional monetary arrangement was “not new at all”, as Anwar had initiated it “some 20 years back” when he was Malaysia’s finance minister.

“It is therefore utterly erroneous to add revival of the idea of an Asian monetary fund as yet another one of those ‘against or with US and its allies and partners’ checklists,” he said.