Why Is There No Asian Monetary Fund?
Asia should develop its own model of regional financial cooperation.
We describe the development of regional financial arrangements in Asia and Europe, assess the effects on financial stability, and draw lessons for Asia from European experience. One of our main conclusions is that Asia needs to develop a more institutionalized multilateral structure as part of a regional financial safety net that also includes foreign exchange reserves and bilateral swap arrangements. Such a structure would have a permanent secretariat and a system of paid-in capital that goes beyond the current Chiang Mai Initiative Multilateralization arrangement and might one day evolve into an Asian monetary fund. Obstacles to achieving this include great power rivalries between Japan and the People’s Republic of China and lingering concerns about United States opposition to increased Asian autonomy. Lessons from Europe include the need for strong economic surveillance and organizational arrangements that facilitate macroeconomic adjustment and recapitalization of stressed institutions and a reduction in overdependence on the dollar for trade and finance. Absorbing these lessons and designing more effective financial crisis prevention and response mechanisms will be the main task for Asian policy makers ahead as concerns mount about the sustainability of the global economic upswing.