Policies to Bridge Regional and Global Financial Arrangements
The G20 placed the International Monetary Fund (IMF) at the center of its efforts to tame the global financial crisis, tripling the Fund’s lending capacity and refurbishing its mission and instruments. However, as the world economy recovers, the Fund is facing difficult questions about its legitimacy and effectiveness. One of the main challenges is a specter of disintegration of the global financial architecture into regional and bilateral arrangements – right when globalization of the world economy and crises alike calls for system-wide management.
The epicentre of the issue is Asia. Amid the 2008-09 global crisis, the 13-member Chiang Mai initiative conceived in the wake of the 1997-98 Asian financial crisis was expanded to a total of US$ 120 billion, and it was “multilateralized” – a step expected to lead to the construction of an Asian Monetary Fund. But Chiang Mai is hardly sui generis; there are a number of other, even if not as prominent and/or widely discussed regional funds in Europe, the Americas, and the Middle East,6 and Europeans and Latin Americans have recently discussed deeper regional financial integration. In addition to regional efforts, crises have frequently spawned bilateral, ad hoc lending arrangements. For example, in the latest crisis, Korea and Singapore turned to Japan and China for emergency lines outside the Chiang Mai system, and Korea performed its largest, US$ 30 million swap arrangement with the US Federal Reserve.
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