International Monetary and Economic Development Architecture: Complementarity Between Global and Regional Institutions

Abstract

The rise of new regional institutions has led to the decentralisation and multi-layering of the global financial architecture (GFA) comprising the international monetary architecture (or the global financial safety net) and the economic development architecture, posing a risk of fragmentation. In this chapter, we argue that the present approach of ad hoc complementarity between the ASEAN+3 regional financial safety net (ASEAN+3 RFSN) and the IMF, when effective, may be sufficient to manage a moderate financial crisis in a single country. Managing a more serious crisis with contagion to neighbouring countries will require a more structured form of cooperation between the ASEAN+3 RFSN and the IMF, similar to the arrangement that was set up in Europe to manage the eurozone crisis. Then taking the case of East Asia in general and China in particular, we posit that the ASEAN+3 RFSN, the CMIM and AMRO, and the China-led non-traditional development banks such as the AIIB and NDB have functional complementarities with their global counterparts (namely the IMF and the World Bank, respectively). There is also a degree of “healthy” competition between regional and global institutions which is beneficial to financial governance. We do not find evidence of “unhealthy” competition which increases the risk of fragmentation of the global financial architecture. The benefits of decentralisation and creation of regional institutions appear to have outweighed the risks. Our findings suggest, therefore, that the rise of regional institutions and the decentralisation of the global financial architecture have not led to fragmentation, so far. But we caution that there are limits to this argument due to the history of the establishment of regional institutions, the gap between rhetoric and reality, and the evolving geopolitical forces including the US veto power over the IMF and the ongoing US-China trade war.