Monetary Cooperation in East Asian Context: Progress and Challenges

Abstract

In recent decades, the Association of South East Asian Nations (ASEAN) and its Northeast Asian counterparts, China, Japan and the Republic of Korea (collectively known as ASEAN 3, APT) have made significant progress in trade liberalisation and economic integration, while progress towards monetary cooperation has been rather modest. In the context of Asian regionalism, the Asian Financial Crisis has played a key role as these countries sought to safeguard themselves against the next wave of financial turmoil by strengthening their determination to further their economic integration.

With this aim, the ASEAN 3 process was institutionalised in Malaysia, in December 1997, to deal with the financial crisis and enhance the capacity of these countries to maintain financial stability, and the programme to establish an ASEAN Free Trade Area (AFTA) was expedited from a 2008 target date to 2002. With regard to monetary matters, Asian countries’ motivation for monetary cooperation was composed of three main elements: the blow of the Asian Financial Crisis and the inadequate response of extra-regional players; the under-representation of Asia in the IMF quota distribution and Asia’s lack of voice in IMF; and the developments in other regions, in particular the example of the European Union. The trend rend of regionalism in East Asia is in fact stemmed directly from the Asian Financial Crisis.

The Asian Financial Crisis provided such a spark to Asian regionalism that it is sometimes characterised as "crisis as catalyst". The Crisis led East Asian countries to restructure their economies and reassess the economic successes of the Asian miracle. In addition to individual national responses, it also elicited a collective response from countries aiming to insulate the region from global turbulence. In the trade and economic aspects, this regional approach contributed to the spread of regional and bilateral free trade agreements. In the filed of international monetary and financial matters, the most pertinent element of this regional approach is to be found in such examples as the emergence of currency swaps, Asian bond markets, and the accumulation of foreign currency reserves.

In 2008-2009, the world witnessed another serious global financial crisis, but this time, signalling a clear shift in attitude, Asian countries chose not to turn to the IMF, but strove to solve their liquidity difficulties on their own. In the aftermath of global financial crisis, and in view of the resulting shift of attitude, this article aims to account for the recent development of monetary cooperation in East Asian countries. The focus will be on the Chang Mai Initiative (CMI), movements toward multilateralisation, and the relationship between the Chang Mai Initiative Multilateralisation (CMIM), pre-existent bilateral swaps, and the International Monetary Fund (the IMF). The article investigates to what extent the CMIM is legally consistent with the IMF Agreement, based on arguments advanced scholars, and concludes by considering the future of Asian monetary cooperation.

Keywords: ASEAN, AFTA, Monetary Cooperation, IMF, Financial Crisis, Chang Mai Initiative