savings could be a win - win combination. 3. asia ’ s single currency - a dream or a vision? if the yen could play a larger role in the global economy, does it mean that asia would become an “ yen economic area? ” more generally, could there emerge a currency that becomes an anchor in the region? furthermore, could we see a common currency area in asia? for the near future, you would agree that this is quite unlikely. economic structures of asian economies are not only diverse but also ever - changing. against this background, foreign exchange regimes vary greatly. without a convergence of economic conditions, it would be most inappropriate to lose flexibility through the adoption of an artificial framework, be it a currency peg or a single currency. such an adventure could lead to an accumulation of imbalances within the system. looking back on japan ’ s experience, such imbalances would always be corrected with a vengeance. this is a lesson that we should never forget. even if we concur that currency integration in asia is probably a dream in the short term, could it be a vision in the medium to long term? in europe, it took about 50 years before the euro was introduced. my chinese friends often tell me that 50 years is just a blink of the eye in their four - thousand - year history. nevertheless, in this rapidly changing global economy, asia could have a single currency 50 years from now. if this vision is to be realized, economies of the region must pass a few tests. first, we need to see further deepening of asian countries ’ mutual dependence through division of labor. in this process, asia would become more important in the global economy. second, we need the development of vibrant financial markets, capital markets in particular, in yen and other asian currencies. in this context, liberalization of cross - border capital flows within the region is a key element. last but not least, we need to build both domestic and global confidence towards economic policies of asian economies. already, i see encouraging developments in this direction. with regard to the first point, we are seeing a significant strengthening of economic linkages between asian economies through trade and direct investment. for example, asia ’ s share in japan ’ s trade increased to around 45 % in 2003 from around 30 % in the first half of the 1990 ’ s. for the second point, cooperative efforts to develop regional financial markets are beginning to bear fruits. an example is the asian bond fund ii

project, being developed by the 11 central banks of emeap economies, where emeap central banks will jointly invest in local currency denominated funds. as regards the third point, central banks in the region are now firmly focused on price stability and there is considerable progress in financial system reforms in each economy. these encouraging signals are, if anything, rather endogenous and market driven in their nature. yet, if we are to seriously explore the possibility of a single asian currency, strong political will is going to be essential at some stage. this is because, if the asian economies are to achieve convergence at a high level, rather painful reforms are indispensable. this is obvious if we look how difficult it is in europe to comply with the stability and growth pact. the introduction of a single currency by itself does not solve problems in each economy. neither does it yield economic growth. the full potential of a common currency can only be realized in so far as respective economies tackle structural problems in the process of achieving a monetary union. asian economies would experience significant dislocations if they were to form a monetary union without disciplined economic policies. in this context, we are paying attention to see if europe could succeed in advancing structural reform and achieve stronger growth by exploiting the heightened economic potential brought about by the introduction of the euro. before i finish, i would like to emphasize that asian integration would probably be soft - structured. each asian economy should endeavor to increase the attractiveness of their economy and currency for the time being. initially, this would mean additional flexibility. we can then share our experiences. at the same time, we should ensure that cultural diversities in the region would be translated into creative energy, and not clashes of culture. only then would we realize stable regional currencies, and the dream of a single currency would become a vision. thank you very much for your attention.