The future of regional liquidity arrangements in East Asia: lessons from the global financial crisis

Abstract

The global financial crisis of 2008–09 presented a critical challenge to East Asian regional financial cooperation. Over a decade of efforts to reduce regional vulnerability to financial crisis and contagion were confronted with the worst global economic crisis since the 1930s. The results for East Asia were mixed. On the one hand, no economies were forced to submit to IMF-led bailouts, as had happened so painfully in 1997–98. On the other hand, the most highly-developed component of the project of ASEAN+3 financial regionalism – the Chiang Mai Initiative (CMI), which set up a system of emergency liquidity provision – appeared irrelevant, as the central banks of South Korea and Singapore prioritized the establishment of new swap agreements with the United States as a means of ensuring dollar liquidity instead of relying on their Chiang Mai partners. Nonetheless, in May 2009, the ASEAN+3 finance ministers agreed to a substantial expansion and ‘multilateralization’ of the initiative. This paper critically addresses whether CMI has been transformed into an ‘Asian Monetary Fund’ and argues that the events of 2008–10 make substantial additional movement in that direction unlikely.