Regional Monetary Cooperation in the Developing World Taking Stock

Abstract

This chapter examines in a systematic way how different forms of regional monetary cooperation may contribute to reducing macroeconomic volatility and buffer exogenous shocks for developing countries and emerging markets. It divides mechanisms into three categories of regional financial and monetary cooperation: (a) regional liquidity pooling to address short-term balance of payments imbalances; (b) payment systems to reduce exposure to exchange rate volatility and promoting inter-regional trade; and (c) regional macroeconomic coordination mechanisms. The chapter sweeps across the globe, describing individual mechanisms such as the payment systems the Unified System for Regional Compensation (or SUCRE) and bilateral Argentina-Brazil arrangements as well as regional poolings, the Chiang Mai Initiative, Eurasian anti-crisis, and Arab monetary funds; and finally regional macroeconomic arrangements such as the Gulf Cooperation Council, Caribbean Single Market, West African Monetary Zone, and South African Development Community. Each level has a different role to play, and indeed the diversity of various initiatives within each level is testament to different contexts and development goals. The highest level of integration is challenged in most regions by a reluctance to share policy sovereignty at a regional level because of uncertainty about the potential gains for individual nations. National economic, monetary, and exchange rate policies stand in the way of further and deeper integration. In some cases, violent conflicts and war continue to setback plans for further cooperation. In others, the ambivalence of colonial roots stands alongside the motivation of shielding against international volatility.