Regional Financial Cooperation Research Articles

The varieties of financial statecraft and middle powers: assessing South Korea’s strategic involvement in regional financial cooperation

In recent years, the financial statecraft literature has expanded from a focus on great powers to encompass the behavior of emerging powers. While offering an important corrective, the literature does not yet adequately address the full variety of the emerging powers’ strategies of financial statecraft. In particular, we argue that regional middle powers behave differently from regional great powers even when they have similar capacities at the global level. For instance, both India and South Korea are categorized as emerging powers in the financial statecraft literature and deploy regional strategies to reduce their financial vulnerability. Yet their financial statecraft strategies have clearly differed in practice. India has sought to challenge the global status quo and influence its neighbors, while South Korea has pursued more modest and defensive goals. Drawing on the middle power literature, we posit that middle powers’ relative position within their home regions explains such differences among the financial statecraft of emerging powers. To demonstrate the utility of this approach, we examine South Korea’s financial statecraft in the Asia-Pacific region. We find that its position as a regional middle power effectively explains its patterns of bilateral and regional cooperation in the monetary sphere.

Financial globalisation in ASEAN+3: Navigating the financial trilemma

AbstractThis paper offers a critical narrative of the ASEAN+3 economies' tryst with financial globalisation over the last two decades, with a specific focus on the evolution of the region's internationalisation of the financial sector. By applying the ‘Financial Trilemma’ framework, we posit how the recent emergence of foreign fintech players, digital banks, and Big Techs in finance are promoting further de facto financial integration in the region whilst also simultaneously exacerbating financial stability concerns alongside posing other non‐financial risks to market integrity, consumer privacy, and data protection. The regulation of fintechs and Big Tech in finance introduces a different type of policy trilemma for regulators across three discrete policy objectives/outcomes, viz. financial stability/market integrity; market efficiency/competition; data privacy/consumer protection. We argue that this necessitates greater regional financial cooperation by the ASEAN+3 economies which inevitably requires regional financial regulators to be prepared to forsake a degree of sovereign autonomy over respective national financial policies and to stave off systemic risks arising from the interconnected nature of transnational digital banking conglomerates.

Regional Financial Cooperation in East Asia from a New Perspective

Regional Financial Cooperation in East Asia from a New Perspective

How has ASEAN+3 financial cooperation affected global financial governance?

Abstract In the wake of the Asian Financial Crisis, East Asia’s efforts to enhance regional financial cooperation raised the possibility of East Asia playing a more assertive role in global financial governance. However, despite the region’s increased voice in governance and economic weight, East Asian financial systems and markets have mostly adapted to global norms developed in New York, London, and Washington, DC. We argue that the failure of East Asia to push an alternative vision of financial governance reflects both the lack of regional political unity and, more crucially, the divisions of interests both between and within key East Asian economies. Despite nearly universal regional dissatisfaction with global standards and institutions in the wake of the Asian Financial Crisis, these two factors have combined to prevent the development of a distinctive regional model that could be promoted at the global level.

Comments on A Framework for Regional Banking Regulation in ASEAN

Comments on A Framework for Regional Banking Regulation in ASEAN

Financial cooperation initiatives in Latin America: Conditions of origins, subsistence and eventual vanishing

Why do countries engage in Regional Financial Cooperation (RFC) initiatives and why they may give up on them? Under which conditions are those mechanisms born and how may changes affect their performance? Although comparative studies have been a prolific strategy to investigate RFC the focus on the experiences of a specific region may reveal new insights. Therefore the aim of this paper is to map the existing RFC mechanisms in Latin America, seeking to identify the demand, supply and conjectural conditions behind the processes of their creation and evolution. The theoretical framework provides concepts from International Relations’ theories concerning regional institution building. Empirically fourteen Latin American RFC initiatives are surveyed. As a result important variables explaining RFC mechanisms in Latin America are presented in the paper: demand for greater participation (sense of belonging), material and political capacity from a paymaster and macroeconomic coordination.

Study on the Path Selection of Yen Re-internationalization After Asian Financial Crisis and Its Enlightenment

After Asian financial crisis, the Japanese government quickly adjusted its foreign economic policy and, unlike their traditional image of inaction, actively carried out and led the crisis rescue work through separate policies. The introduction and implementation of the “New Miyazawa Initiative” represented that the focus of the Japanese government has shifted to the preparation for and construction of the regional local currency bond market. This was backed by the strategic consideration to restart yen internationalization (or yen re-internationalization). It reflects the Japanese government’s reflection and adjustment on the path selection of promoting the internationalization of yen in the early stage. Relying on such change, The Japanese government intended to foster regional yen bond market to build yen backflow mechanism in East Asia and to realize the long-term objective of yen internationalization through “regionalization.” On the twentieth anniversary of Asian financial crisis, this paper re-examines the change to yen internationalization strategy, which is of practical significance for other cases’ attempt to internationalize local currencies as RMB internationalization at present. With reference to the strategic change in yen Re-internationalization, RMB internationalization shall shift the focus from “trade settlement” in the past to “capital outflow” through fostering the regional RMB bond market, expand RMB backflow mechanism. China shall focus on Asian Infrastructure Investment Bank (AIIB) and other new regional financial cooperation platforms to promote RMB regionalization, thus finally realizing the strategic objective of RMB internationalization. Nevertheless, this path selection is inseparable from China’s positive attitude toward financial and capital liberalization.

Complex network analysis of bilateral international investment under de-globalization: Structural properties and evolution.

As many countries are now seeking to protect their own markets rather than indulge in global trade, this paper examines whether this type of de-globalization behavior has been having any effect on international investment relationships through a systematic analysis of international investment network (IIN) in 127 economies from 2005 to 2016. Unlike previous studies that only analyzed portfolio investment data, the bilateral international investment data were estimated using a matrix-based iteration approach, and the IIN established using complex network theory. Using bilateral international investment data made the results more reliable and somewhat closer to reality. To analyze the structural properties and evolution of the IIN, complex network indicators including a new one named node similarity were developed. The node similarity is defined as the proportion of common relationships of the current economy between two successive years which is useful to reveal the dynamics of the IIN. This paper finds that there are heterogenous and hierarchal properties in the IIN, several economies had a wide range of international investment partners, while most others had only a small range of investment partners and were more likely to form tight groups within the network. The economies in the IIN were tending towards smaller but closer communities, a new trend of regional financial cooperation was developing. The IIN is divided into more communities over time while the top active and central economies often locate in different communities. These findings imply that the structure of the IIN is changing geographically during the de-globalization rather than independent with regions. The regional cooperation has made positive effect on the international investment. The governments should ensure that they continue to support liberal financial policies and to promote better regional financial cooperation.

Impact of Global Governance on Regional Cooperation The G20 Summit and East Asian Financial Cooperation

This study analyzes the effects of the global-level governance mechanism on regional financial cooperation in East Asia since the G20 Summit was launched in 2008. First, the G20 has not had much impact on East Asian financial cooperation There has been slow but continuous progress in existing regional financial cooperation based on the IMF-linked Chiang Mai Initiative Multilateralization. Second, Chinese-led regional financial initiatives have burgeoned as a result of China s dual-track policies on global financial governance. This study contributes to understanding the global governance–regional cooperation relationship. First, the relationship varies by the legitimacy and effectiveness of global governance. Second, the leading country s role is crucial in shaping the direction of regional financial cooperation, and hence, the global governance–regional cooperation relationship. Finally, the relationship is complementary in the case of East Asia. However, with China s new regional initiatives, the global financial architecture will be more fragmented.

Analysis of the Heilongjiang Province and Russia Financial Cooperation under the Construction of China-Mongolia, Mongolia-Russia Economic Corridor

Under the background of the China-Mongolia-Russia Economic Corridor, despite the degree of Heilongjiang Province and Russia regional financial cooperation has intensified, the scale and level of bilateral cooperation between the banks has significantly improved. But there still have some problems, such as the financial settlement tool is rare; the relatively small number of bilateral currency settlement and so on. This paper is in close connection with the actual economic development of Heilongjiang, put forward the countermeasures of Heilongjiang Province and Russia should make efforts to improve the financial environment; increase the types of financial settlement and to improve the proportion of the RMB and the ruble settlement.

East Asia–Regional or Global Financial Integration?

The article considers the main directions of further financial integration of East Asian countries, developing deep and stable connections within the framework of global and regional economy. Currently, among the investment flows that lay ground for financial integration with other regions, the leading place is taken by funds from and to the countries of North America and Western Europe. At the same time, the growth in intraregional investment, especially in terms of assets, significantly exceeds growth from the group of developed countries, the share of participation of the latter in interregional relations is gradually decreasing. Through the development of regional integration at various levels of economic interaction, Asian countries are seeking ways to reduce vulnerability and contagion from the processes of financial globalization. While the trends in regional financial integration have certain advantages, they also involve some risks. On the one hand, the Asian region can benefit from greater financial diversification and reduce the concentration and dependence from western economies. On the other hand, this process can bring imported volatility from other countries of the region and reduce the regulatory counteraction from various types of shocks that arise in the economies of these countries and beyond. The intensity of further convergence of the financial markets and institutional arrangements of Asian countries will be largely determined by the scenarios of development of the world economy, as its slowdown and, consequently, decrease of activity in the global capital market clearly leads to strengthening of regional integration processes. The expansion of intraregional cross-border financial transactions requires a significant expansion of the regulatory framework for cooperation, the conclusion of two-and multilateral banking and investment agreements, as they directly determine the process of capital flows liberalization. As regional financial cooperation in Asia has not yet developed as in Western Europe and North America, it is important to pay attention to such essential elements as economic and financial supervision, normative harmonization of banking and securities market, strengthening of regional financial security system and maintenance of development of various segment of financial market, first of all bonds in local currency. In the process of work the basic methods of economic analysis were applied, namely basic system and statistical methods. The use of the system approach allowed to consider the movement of capital flows from an to Asia over a long period of time, the evolution of financial integration models. Calculations and comparisons, the construction of tables was carried out on the basis of statistical methods, which are applied for the study of currency and credit relations. The information base of the studies was based on reports and statistics of the World Bank (IBRD), the International Monetary Fund (IMF), the Asian Development Bank, as well as analytical materials of the Institute of World Economy and International Relations of RAS.

Comment on “Changing International Financial Architecture: Growing Chinese Influence?”

Comment on “Changing International Financial Architecture: Growing Chinese Influence?”

异质性多主体视角下的中国与东南亚周边国家金融合作研究

中国与东南亚周边各国是异质性的多个主体，金融发展水平各异。本文分析了中国与东南亚国家之间经济体量、金融发展水平、金融管理能力和金融风险控制能力的异质性。又从异质性多主体在区域金融合作中的有利影响和不利影响方面分析中国和缅甸、越南、老挝的金融合作，其中有利影响包括区域金融发展之中不存在金融合作主导权的争夺、合作的潜力更大、合作成本小和有利于人民币区域化的推进；不利因素包括金融基础设置的不平衡性对区域金融连通不利、东南亚周边国家金融组织体系不健全、金融市场发展差异较大、风险防控差异较大和区域金融合作的跟随着担忧主导方金融权益侵占本国利益，最后提出区域金融合作的建议和对策。 The People’s Republic of China and the Southeast Asia country bordered on China are heteroge-neous. Their level of financial development is different. This paper analyzes the heterogeneity of economic volume, financial development level, financial management ability and financial risk control ability between China and Southeast Asian countries. And it also analyzes the advantages and disadvantages of the financial cooperation between China and Burma, Vietnam and Laos. Among them, the advantages are as follows: No competition for the dominance of financial coop-eration in the development of regional finance, more potential cooperation, lower cooperating costs and promoting the regionalization of RMB. In contrast, disadvantages are as follows: The imbalance of financial infrastructure is disadvantageous to regional financial connectivity, the fi-nancial organization system of Southeast Asian countries is not well organized, the development of financial market is different, risk prevention and control is different and the follower is afraid that the leader seizes it’s revenue. Finally, the suggestions and countermeasures of regional financial cooperation are put forward.

An Empirical Study on the Economic Effect of Financial Cooperation among Countries of the “Silk Road Economic Belt”

Financial cooperation has been popular among different countries since the new century. Recently, the “Silk Road Economic Belt” has attracted the attention of the world. This research focuses on the economic impacts of financial cooperation between different countries along this belt, arguing that the adoption of local currency settlement system is at the initial stage of regional financial cooperation. This research innovatively measures international trade volume, GDP, and welfare among Silk Road and other major countries as a result of financial cooperation through the application of the GTAP model. The results show that, if the local currency settlement system becomes the main model of regional financial cooperation, the appreciation of local currency, e.g. RMB, can increase the GDP in Central Asia, the European countries, and North Africa and optimize the international trade structure in China at the same time. However, the export and import volumes of most industries of the United States, Japan and Australia which do not belong to the Silk Road will suffer from slight declines due to the change of international trade, while their national welfares will increase slightly at the same time. The results have significant implication for relevant researchers, organizations, and government policy makers. DOI: http://dx.doi.org/10.5755/j01.ee.28.5.19189

The emergence of post-crisis regional financial institutions in Asia—with a little help from Europe

Faced with the negative impact of regional and global financial crises, Asian countries have established joint-solution mechanisms over the last two decades in order to better protect themselves from short-term outflows of capital and from currency speculation. Despite some progress being made in regional financial cooperation, especially by the countries of the ASEAN+3 grouping, the overall degree of financial integration within the region remains surprisingly low, however. This contrasts sharply with the keen interest of many Asian countries in gaining a stronger voice within the multinational finance institutions (MFIs), and especially within the International Monetary Fund (IMF). Unable to initiate major governance reforms of the MFIs, Asian countries have not only set up regional support liquidity arrangements but also their own multilateral development banks (MDBs). While the USA and to some extent Japan have tried to prevent a rebalancing of power within the global financial architecture, major European countries have actively supported these changes by becoming founding members of the China-led Asian Infrastructure Investment Bank (AIIB). Taking a New Institutional Economics (NIE) perspective, the paper aims to explain why some regional financial institutions are more attractive for Asian countries than others and why European countries are supporting Asia’s attempt to gain more weight in global financial governance (GFG)—and, thus, contribute to the acceleration of the power shift away from the USA toward emerging Asian economies in general and China in particular.

LECCIONES DE LA CRISIS DEL EURO PARA LA COOPERACIÓN FINANCIERA REGIONAL

Regional financial cooperation (rfc) aims to secure the liquidity of central banks and build and maintain regional risk to be relatively homogenous. One aspect of rfc consists of the fiscal requirements to guarantee price stability and homogeneity among member countries. The regional accounts unit requires a stabilization fund and a debt bailout fund in order to ensure the spreads. This paper provides an overview of lessons for Latin America based on how rfc has worked in Europe, both before and throughout the euro crisis.

Comment on “Connectivity in East Asia”

Brooks (2016) paper attempts to account for rising connectivity and integration in East Asia. The paper explains how improvements in logistics and infrastructure services have influenced Asia's trade in goods and services. It also discusses the role of information and communication technologies and cross-border direct investment on production networks and intra-firm trade in East Asia. The paper is on an important topic, and provides interesting analyses and conclusions. The extent of connectivity and integration of East Asian economies has increased significantly, both regionally and globally. Empirical findings suggest that economic interdependence between emerging East Asian and major industrial countries continued to increase in the recent decades. In addition, Asian economies have become increasingly interdependent (Kim & Lee, 2012). China plays a central role in Asian production networks, and segmented production for global supply chains has stimulated trade and direct investment in the region, with China as a hub. Linking locations to enable the flow of goods, services, finance, technology, and people are certainly beneficial to the connected economies. As emphasized in Brooks (2016), a high degree of economic openness and integration was a vital ingredient of East Asia's success. Outward-looking export-led industrialization helped Asian economies grow rapidly by exploiting large external markets and imitating advanced technologies. Nonetheless, Brooks seems too credulous with the benefits of connectivity and integration. The global financial crisis of 2008–2009 highlights the risks of Asia's excessive dependence on exports. The region took a hit from the sharp decline in the demand for its exports, and saw many of its economies shrink. While Asian emerging economies were relatively resilient during the global recession, as strong and stable growth in China supported export-led recovery for the rest of Asia, the recent slowdown in Chinese economy triggers worries about sustained growth of Asian economies. The growth rate of China was 6.8% in 2015, the slowest since 1990, and it is expected to continue slowing down, which is a significant threat to the rest of Asia, in particular exporters of commodities and capital goods. It is debatable whether Asian economies should continue to promote integration and pursue export-led growth. Under current uncertain global environments and downside risks in China, emerging Asian economies must pursue appropriate policy measures to rebalance sources of growth and improve productivity (Kawai & Lee, 2015). Lee and McKibbin (2014) suggest that enhancing productivity in the service sector in Asia is critical to more balanced and sustainable growth of Asian economies. Whether enhancing connectivity in financial flows is as beneficial as trade connectivity is an important issue. Financial flows as well as direct investment have been significantly active within the region, contributing to interconnected Asian economies. Since the Asian financial crisis, Asian governments have promoted cross-border financial transactions through financial market deregulation and capital account liberalization. The measures for the extent of financial integration—quantity- and price-based measures—show significant progress in Asia's financial integration (Kim & Lee, 2012). Cross-border financial integration helps each country to be insured against country-specific income risks. It often contributes to the development of the domestic financial system and regional financial cooperation. In contrast to these general benefits, greater financial integration can also incur costs by increasing the sensitivity to external shocks and spillovers. Indeed, the Asian financial crisis in 1997–1998 and recent global crisis 2008–2009 exposed weaknesses in emerging Asia's financial sectors. The region's financial systems still remain inefficient, unable to maintain the pace of change and transformation occurring in real sector. Asian countries must pursue right policies to reap the benefits of financial integration. To strengthen the financial environment against the volatile external shocks, Asian economies need to improve financial sectors' weaknesses while developing more effective financial supervision and regulation and macroeconomic policy frameworks. An interesting question is whether Asian economies should push for greater regional trade interdependence, rather than globally, when larger global markets can bring larger welfare gains to trading partners. Brooks points out a number of cases supporting regional integration. For instance, it is pointed out that while geographical distance becomes less important for trade in goods and services, “comparative advantage of the region matters as much as that of the country when it comes to joining a global value chain.” The state of physical and ICT infrastructure is quite diverse across economies. The costs and benefits of intra-regional integration and specific cross-border infrastructure investment should be assessed accurately in order to design effective policies (for example, in terms of the area and sequencing of cross-border infrastructure investments) that can maximize the benefits of connectivity in the region.

Regional Financial Cooperation of SMEs' Financing in the Asia-Pacific: Lessons from the EU

The recent downturn in the global economy is demanding new growth models from APEC members, and SMEs are expected to play a crucial role in raising productivity and in sustaining economic growth by facilitating technological advances, as well as in job creation. Given that SMEs have generally limited access to finance due to information asymmetries and the riskiness of their businesses, public support by government such as credit guarantee schemes (CGS) are a very important tool for supporting SMEs. SMEs at early stages of development (or start-ups) have risk profiles that favor equity financing or financing through the capital market. For this to work, however, the “law of large numbers” must apply. This method of financing is not appropriate for small markets. Therefore it will work best in a developed equity market such as that of the US. When the conditions above do not hold, two alternatives are possible. The first option is to realize the law of large numbers in an inter-temporal way. This gives rise to the need for a policy lending program (or government credit) resembling a typical European-style policy financing scheme. Second option is to expand the financial market. For this to work, establishing universality of contracts through economic integration is necessary. Universality of contracts mean equal protection of property rights for incoming foreigners who enter into contracts in the host country. In this case, capital inflow is also needed from countries outside the integrated economic bloc. EIB (European Investment Bank) aims to implement the EU’s SME Initiative through its SME support programs. The European Investment Fund is responsible for allocating SME capital to stimulate the SME sector, on behalf of the EC. The experience of the EU points to the necessity of non-bank financing programme to add to bank financing for SMEs. Thus EIF is also shifting its focus from provision of early-stage guarantees to development of various capital market-based instruments for SMEs. This study ends with suggestions for APEC regarding SME financing policies. First, PCGS (public credit guarantee system) is better in the very early stages of financial cooperation. Second, SME financing policy should include both CGS-style and market-based financing. Third, it is necessary to settle on a definition of SMEs based on unified criteria. Fourth, a PCGS-style support scheme is needed to develop within the APEC framework. Lastly, an equity market-based support system specialized for SMEs should be established. This report also suggests action plans to make an Investment fund centered on SMEs.

Managing Capital Flows in Asia: An Overview of Key Issues

Global capital flows into emerging markets, including those in Asia, continue to be volatile. These capital flows generate both benefits and costs. The latter are associated with episodes of currency and banking crises like the 1997 Asian financial crisis and the 2008 global financial and economic crisis. Policy responses can be implemented to minimize the costs. At the same time, policy responses should vary depending on whether “pull” factors or “push” factors dominate the capital flows. Data show that the main impact of capital flows on economies of East Asia is reflected in real effective exchange rates, equity prices, and accumulation of foreign exchange reserves. If “pull” factors are dominant, policy makers should allow real exchange rates to appreciate in the long-term. Three broad categories of macroeconomic measures are available to countries facing surges of capital inflows, if they are not willing to allow the nominal exchange rate to appreciate: (i) sterilized intervention, (ii) greater exchange rate flexibility, and (iii) fiscal tightening (preferably through expenditure cuts). However, all of them have major drawbacks. Instead, capital controls or, more generally, macroprudential policy can be considered. Other policy recommendations include measures to encourage foreign direct investment, as this type of capital flow is more stable and beneficial; exchange rate coordination to reduce the adverse impacts of currency appreciation on the global competitiveness of domestic firms; and regional financial cooperation, particularly in the development of local bond markets. Recent data show the adverse impact of Quantitative Easing tapering on Asian economies. This is verified by econometric results showing the strong linkages between the United States bond markets and those in Asia. These findings enhance the role of macroprudential policy, which can be implemented in the context of regional cooperation in order to reduce negative spillovers across economies in Asia.

From the Chiang Mai Initiative to an Asian Monetary Fund

In the aftermath of the Asian financial crisis of 1997-98, East Asian finance ministers launched several new initiatives for regional financial cooperation including: (i) regional economic surveillance; (ii) a regional liquidity support arrangement; and (iii) Asian bond markets initiative. This paper evaluates the progress of such initiatives—particularly the Chiang Mai Initiative Multilateralization (CMIM)—and explores the possible evolution of the CMIM toward an Asian Monetary Fund (AMF). The paper argues that for an AMF to emerge, East Asian authorities need to strengthen regional surveillance and upgrade their capacity to formulate independent conditionality in the event of crisis lending so that the CMIM can be delinked from IMF programs. The paper also makes a case for more flexible use of CMIM when the type of external shock that affected the Republic of Korea in the fall of 2008 following the Lehman collapse hits Asia once again in the future. Given capital inflow risks, the paper suggests the authorities to prepare for exchange rate policy coordination—through intensive policy dialogue—to better manage macroeconomic and financial conditions while keeping intraregional exchange rate stability. An Asian Currency Unit should be developed to facilitate such policy dialogue for exchange rate policy coordination. Acknowledgment: This paper is prepared for the conference on the Future Global Reserve System organized by Columbia University in partnership with ADB and ADBI in Tokyo on 17-18 March 2010. It is a revised version of the discussion paper presented for the first phase of the ADB International Monetary Advisory Group (IMAG) meeting held in New York, 16-17 September 2009. The findings, interpretations, and conclusions expressed in the paper are solely the author's alone and do not necessarily represent the views of the Asian Development Bank, its Institute, their respective executive directors, or the countries they represent.