The Asian Dollar Market’s Regional Role

The Asian dollar market (ADM)1 is undoubtedly the best known of the private-sector regional financial efforts, and, while not confined to ASEAN, nevertheless very much concerns its member countries.2 The market was formalised in 1968 when the Bank of America received permission to operate an ‘offshore’ (non-resident) lending facility within its Singapore branch. The new facility, called an Asian Currency Unit (ACU), was to maintain separate accountability from the branch office, a ‘bank within a bank’. By offering returns generally comparable with the Eurocurrency or American markets and some taxation advantages, the ACU-licensed institutions attracted non-Singapore dollar deposits normally placed in London and other Eurocurrency centres and allowed Asian central banks and other investors to place deposits within Asia instead of Europe. But, as Professor S. Y. Lee explains, ‘in the early periods of establishment, 1968–71, deposits collected in the ACM (Asian Currency Market) were largely channelled to the ECM, (Eurocurrency market) London and New York for lending or investment. Since 1972, there has been a reverse flow of funds from ECM to ACM.’3 Today there is an active and substantial two-way flow of funds between the ASEAN countries and the ADM.