Regional Financial Arrangement in East Asia: Policy Proposal for Strengthening the Chiang Mai Initiative Multilateralization

66 Pages Posted: 23 Jul 2015

See all articles by Pravin Krishna

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Jiyoung Choi

Korea Institute for International Economic Policy

Tae Hoon Lim

Korea Institute for International Economic Policy

Date Written: December 30, 2014

Abstract

Since the Asian financial crisis of 1997-98, the East Asian countries have made efforts to guard against the crisis not only by being self-insured through the accumulation of foreign reserves but also by establishing a bilateral or regional financial safety net through the pooling of reserves. Holding ample amount of foreign reserves has proven itself to be useful but it comes with a high price tag. Moreover, in spite of noticeable achievements in recent years, the regional financial arrangement, namely the CMIM framework, had not been activated during the global financial crisis in 2007-08. Ironically, the bilateral currency swaps with the US Federal Reserve Bank played a pivotal role at that time in addressing some Asian countries’ liquidity shortages.

The crisis in 2007-08 has provoked a recurring discussion about the necessity of transforming the international monetary system and enhancing the alternative or complementary insurance mechanism of regional financial arrangements to fend off shocks. In the paper, we propose two ways to strengthen a regional financial arrangement in East Asia to make a practical contribution to the global architecture reform agenda and to build a resilient economy: (i) establishing a currency arrangement under CMIM framework to increase the usage of local currencies; and (ii) creating a cooperative framework between the AMRO and the IMF in the area of surveillance.

Keywords: regional financial arrangement, trade settlement currency, international monetary arrangements, CMIM, currency internationalization

Suggested Citation

Krishna, Pravin and Choi, Jiyoung and Lim, Tae Hoon, Regional Financial Arrangement in East Asia: Policy Proposal for Strengthening the Chiang Mai Initiative Multilateralization (December 30, 2014). KIEP Research Papers Working Papers No. 14-05. Available at SSRN: https://ssrn.com/abstract=2634318 or http://dx.doi.org/10.2139/ssrn.2634318

Pravin Krishna (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jiyoung Choi

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Tae Hoon Lim

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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