East Asian Financial Cooperation

by C. Randall Henning

Overview

Since the financial crisis in the late 1990s, Asian governments have been considering strengthening regional monetary and financial cooperation. Proposals have ranged from the Asian Monetary Fund to common currencies. Durgaing the past two years, China, Japan, Korea, and the member-states of ASEAN have established a set of financial facilities under an agreement made in Chiang Mai, Thailand. The Chiang Mai Initiative (CMI) mobilizes a portion of the very large reserve holdings of its members for financial stabilization in a crisis. Organized under the "ASEAN plus three" grouping, these arrangements do not include the United States or other countries outside the region.

The CMI thus raises several important questions: Under what terms will financing be extended on a regional basis? Is it likely to stabilize or destabilize international capital flows? What will CMI's relationship be to the International Monetary Fund and other official financial institutions? How should governments build on these arrangements in the future? Could they provide the basis for broader integration of the East Asian region? This study examines the case for and against regional financial arrangements in East Asia, describes the CMI, compares it to financial arrangements in other regions, and recommends how the Initiative can preserve its complementarity to multilateral institutions and be strengthened in the future. The study specifically addresses the concerns of Americans, Europeans, and multilateral organizations, assessing the pros and cons of such regional financial arrangements for the global system.

Product Details

ISBN-13:	9780881323382
Publisher:	Peterson Institute for International Economics
Publication date:	09/27/2002
Series:	Policy Analyses in International Economics , #68
Edition description:	New Edition
Pages:	144
Product dimensions:	6.00(w) x 9.00(h) x (d)
Age Range:	18 Years

About the Author

C. Randall Henning was a Visiting Fellow who has been associated with the Institute since 1986. He serves on the faculty of the School of International Service, American University. He specializes in the politics and institutions of international economic relations, international and comparative political economy, and regional integration. His research work focuses on international monetary policy, European monetary integration, macroeconomic policy coordination, finance G-7 and G-8 summit cooperation, and regional cooperation in East Asia.

Table of Contents

	Preface	vii
	Acknowledgments	xi
	Acronyms	xiii
1	Introduction	1
2	The Case for Financial Regionalism	5
3	The Chiang Mai Initiative	11
	Decisions at Chiang Mai	12
	Follow-Through	14
	Financial Significance	22
	Current Agenda	25
	Alternative Futures	27
	Broader Implications	28
	Prospects	29
4	Critiques of the CMI	33
	Necessity	33
	Moral Hazard	37
	Additionality	38
	Political Support	39
	Covariation	40
	The Worst-Case Scenario	41
5	Comparison of Other Regional Financial Arrangements with the CMI	49
	Bilateral Swaps among the Group of Ten	49
	European Facilities	53
	The North American Framework Agreement	59
	The CMI in Comparative Perspective	60
6	The Interests of the United States and the International Monetary Fund	63
	The United States	63
	The International Monetary Fund	68
7	Conclusions and Recommendations	75
	Summary of the Case for Regionalism	75
	The International Monetary Fund	77
	The United States	86
	ASEAN plus Three	87
	A Final Note	95
Appendix A	Model of Reciprocal Currency Agreements of the US Federal Reserve System	97
	References	99
	Index	109
	Tables
Table 3.1	Bilateral swap agreements under the Chiang Mai Initiative	20
Table 3.2	Swap arrangements under the Chiang Mai Initiative, Northeast Asia to ASEAN	23
Table 3.3	Swap arrangements under the Chiang Mai Initiative within Northeast Asia	24
Table 5.1	Reciprocal currency arrangements of the United States	51
Table 5.2	Foreign exchange market intervention in the European Monetary System	56
Table 5.3	EU balance of payments loans	58
Table 5.4	Comparison of swap arrangements and facilities	62
Table 6.1	Comparison of IMF quotas and basic indicators of the United States and regions	73
	Figures
Figure 2.1	East Asian foreign exchange reserves	7
Figure 4.1	Exchange rates of East Asian currencies	35
	Boxes
Box 3.1	What is a "currency swap"?	16
Box 7.1	Principles of regionalism for the International Monetary Fund	79