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Asian Monetary Fund: Journey is getting shorter

Macroeconomic cooperation in Asia has taken huge strides forward over the last 18 months, including the Chiang Mai Initiative and the more recent establishment of the ASEAN+3 Macroeconomic Research Office. But this column argues that while the road towards an Asian Monetary Fund is now shorter, we shouldn’t expect to see a new fund for at least another five years.

Closer monetary and financial cooperation in Asia is making progress, if slowly. Establishment of an Asian Monetary Fund – an idea born in the aftermath of the 1997 Asian Crisis – made concrete progress with establishment of the reserve-swapping arrangement known as the Chiang Mai Initiative. This network of bilateral swaps among Asian central banks was set to help members with liquidity problems in times of crisis.

But the recent global crisis has damaged the credibility of this idea. In 2008 and 2009, a number of countries in the region faced a liquidity shortage but none of the Chiang-Mai swaps were used. The swaps were multilateralised last year so that the reserves could be withdrawn simultaneously with one agreement, thus forming a $120 billion crisis fund (Joint Ministerial Statement, May 2010).

A big part of the problem was the absence of a surveillance unit to conduct due diligence. Understandably, countries in the region were not willing to lend to each other without it. To redress this, ASEAN nations together with China, Japan and Korea (ASEAN+3) established the ASEAN+3 Macroeconomic Research Office, appointing Benhua Wei as its Director. The new office’s role is to watch for signs of possible turmoil in order to set a multilateral currency swap framework in motion.

ASEAN+3 financial ministers have also agree to explore ways that the new office could expand its role in the direction of an Asian Monetary Fund by providing guidance on economic and fiscal policies to countries in the region. Another step in that direction came when it was agreed that ASEAN+3 central bankers should join the finance ministers at their annual meetings.

Chiang Mai Initiative Multilateralisation

The Chiang Mai Initiative Multilateralisation agreement came into effect in March 2010. China (together with Hong Kong) and Japan each agreed to contribute 32% of the amount, Korea another 16%, and the ASEAN countries the remaining 20%. Within ASEAN, Indonesia, Malaysia, Thailand, and Singapore agreed to contribute $4.77 billion each, while the Philippines provided $2.64 billion. In times of crisis, these five ASEAN members can withdraw 2.5 times their contribution.

During the global crisis, Korea and Singapore did not turn to the Chiang Mai Initiative but rather relied on national reserves or swap agreements with non-regional and regional countries outside of the Chiang Mai Initiative. Korea triggered its swap agreement with US and China, and Singapore with the US and Japan.

The hope is that the new ASEAN+3 Macroeconomic Research Office, as a surveillance unit of Chiang Mai Initiative Multilateralisation, will play an important part in monitoring and analysing regional economies, in particular the early detection of risks, swift implementation of remedial actions, and effective decision-making. The ministers also instructed their deputies to launch a study to strengthen the legal status of the Research Office to constitute an international organisation with an international legal personality.

Asian Monetary Fund

As is well known, the original proposal to establish the Asian Monetary Fund was made at the height of the Asian financial crisis in 1997-1998. It was quickly shot down by the IMF and the US Treasury. But the difficulty in reforming the governance of the IMF – its charter, quotas, and voting rights – to give greater weight to large emerging markets such as China and India has led to the evolution of a more flexible decentralised global monetary architecture. Under the decentralised architecture, the IMF as the “senior” global organisation would be linked to monetary funds in various regions of the world in a complementary manner (Kawai et al. 2009, Rana 2010). The Arab Monetary Fund and the Latin American Reserve Fund have already been established, and the probability of a European Monetary Fund is high (Henning 2011). The case for the Asian Monetary Fund has, therefore, been strengthened.

In Pittsburgh, the G20 had pledged to increase the quota of large emerging markets by 5%, and this was increased to 6% in Seoul. However, even the more modest pledge made five years ago when the IMF annual meeting was held in Singapore in 2006 has yet to be implemented; the required support of 85% of IMF membership has yet to be obtained.

What do opinion leaders think about an Asian Monetary Fund?

Recently, I led a team of researchers from Nanyang Technological University for the ASEAN+3 Research Group in surveying ASEAN+3 opinion leaders (comprising government officials, academics, and bankers). The findings are illustrative (Rana et al. 2011). Nearly two-thirds of the opinion leaders felt strongly that the decision to establish the Research Office was significant and that it would enhance the usage of Chiang Mai Initiative Multilateralisation. A similar number of leaders felt that some time in the future, the Chiang Mai Initiative Multilateralisation and the ASEAN+3 Macroeconomic Research Office should be merged to establish the Asian Monetary Fund. The opinion leaders, however, felt that the Asian Monetary Fund should complement the IMF and not try to supplant it. Henning (2011) and ADB (2011) have presented some ideas on how this complementarity could be promoted.

But one should not expect the Asian Monetary Fund any time soon. Although established, the Research Office is not operational yet, and its legal status has also yet to be determined. Even beyond that, the task of establishing an effective independent surveillance unit with a fully operational early warning system of crises and competencies to complement the IMF will surely take time.

In the survey, roughly one-half of ASEAN+3 opinion leaders felt that the Asian Monetary Fund could be established sometime between 2016 and 2020, and another one-third felt that that this could happen only after 2020. Only one in ten opinion leaders felt that it could be established within the next five years.

Concluding remarks

Asia has not forgotten the Asian Monetary Fund. In fact, its case has been strengthened by the difficulty in reforming the governance of the IMF. The establishment of the new office this year and the multilateralisation of the Chiang Mai Initiative last year have quickened the journey towards an Asian Monetary Fund. But it will still take time.


Asian Development Bank (2011), Reshaping Global Economic Governance and the Role of Asia in the Group of Twenty.

Henning, RC (2011), “Coordinating Regional and Multilateral Financial Institutions”, Peterson Institute for International Economics Working Paper 11-9. March.

Kawai, M, P Petri, and E Sisli-Ciamarra (2009), “Asia in a Global Governance: A Case for Decentralised Institutions”, ADBI Working Paper 157, October.

Rana, PB (2010), "Evolving Global Economic Architecture: Will We have a New Bretton Woods?”, RSIS Working Paper 215, November.

Rana, PB, W-M Chia and Y Jinjarak (2011), “Monetary Integration in ASEAN+3: A Perception Survey of Opinion Leaders”, April 2011. Manuscript.

Joint Ministerial Statement of the 13th ASEAN+3 Finance Ministers’ Meeting, 2 May 2010.

Joint Ministerial Statement of the 14th ASEAN+3 Finance Ministers’ Meeting, 4 May 2011.

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