The Future of the Chiang Mai Initiative: An Asian Monetary Fund?

Policy Brief
February 2009

Senior officials of East Asian governments and central banks will hold several meetings between February and May 2009 to consider, among other things, transforming the Chiang Mai Initiative (CMI) from a network of bilateral swap arrangements into a collectively managed fund-which they refer to as "CMI multilateralisation." The region's disaffection from the International Monetary Fund (IMF), stemming from the 1997-98 financial crisis, sustains the attraction of such a fund among the ten members of the Association of Southeast Asian Nations plus China, Japan, and South Korea (ASEAN+3). The present financial crisis presents a moment of truth for ASEAN+3: Are they serious about regional financial cooperation?

Creating a common regional fund would require addressing questions of obligations, contributions, and rights of members as well as the size, governance, and borrowing arrangements. ASEAN+3 officials appear to be converging on $120 billion as the size of the fund. But they have yet to decide on the specific contributions from each member and exactly how joint decisions will be made. The shares of China and Japan are particularly important, because they will determine the relative influence of the two countries.

Henning argues that CMI multilateralisation could contribute to the global financial architecture by supplementing the resources of the IMF and streamlining negotiations over financial rescues. ASEAN+3 should develop their own surveillance mechanism further with assistance of international financial institutions. Given the current weakness of regional surveillance, however, East Asian governments should continue to link their bilateral swaps and any common fund to the IMF. Henning urges the international community to establish guidelines for the respective roles of regional facilities, the IMF and other international financial institutions.