Asian Monetary Fund (AMF)

1. Asian Monetary Fund(AMF) Presented by Yun Michelle Wang Xiong Zhang Bob Hai-Yuan Cheah

2. Asian Monetary Fund (AMF)Background • Lessons from East Asia crisis • IMF is not countable. • International financial rescue is not dependable. • Regional financial co-operation is important • Self-help is necessary • Determine our own destiny • Get prepared

3. Asian Monetary Fund(AMF)Background • Initial proposal • Aug. 1997, Japan, and several ASEAN (Association of Southeast Asian Nations) countries, proposed AMF. • To take up some IMF activities, e.g., surveillance. • Step to AMF: ASEAN Surveillance Process Established in Manila, 1998 ASEAN plus Three: China, Japan, and South Korea. • Strengthen policy dialogues and information sharing • Monitor economic and financial developments. • Enhance self-support. • Provide closer economic peer review.

4. Asian Monetary Fund(AMF)Background • IMF reaction for AMF • Strong opposition • moral hazard • competing with the IMF , double standards. • AMF never takes off

5. Asian Monetary Fund (AMF)Background • Why ? –It’s premature • Controversial opinions • AMF was aimed at complementing IMF. • AMF should operate separately.  • Lack essential elements • Expertise—it takes a long time to build up. • Clout – it’s not easy to actually solve problems. • Credibility -- financial market is global. • Government’s interests differ • It’s important to increase voting power at the IMF. • It’s doubtful to contemplate a United States of Asia.

6. Asian Monetary Fund (AMF) Background • Activities to promote AMF • June 2003, The ABF (Asian Bond Fund) was launched in Bangkok. • May, 2005, China, Japan, the Republic of Korea and ASEAN have agreed to expand their network of bilateral currency swaps. • The Chiang Mai Initiative has the potential to become an AMF

7. Asian Monetary Fund (AMF)Chiang Mai Initiative • The Asian Development Bank annual meeting in Northern Thai city on May 6, 2000 • Asean + 3 figure out Asian regional framework for financial cooperation • An expanded Asean Swap Arrangement • Total amount of the facility was $1 billion • The agreement to set up a web of bilateral pacts to swap and repurchase central-bank reserves • Bilateral Swap Arrangement can be drawn for 90 days • The first BSA drawing may be renewed seven times

8. Asian Monetary Fund (AMF)CMI (Continued) • Bilateral Swap Agreement enables parties to borrow the equivalent of between $1 billion and $3 billion in foreign exchange reserves from partners • The currency swaps are in principle to be done between US dollar and local currencies • Swap between Japan and China is done in yen and renminbi and is two-way • Swap between China and Korea is done in renminbi and won and is two-way • 90% are linked to IMF conditionality

9. Asian Monetary Fund (AMF)CMI (Continued) • The first step of monetary integration in East Asia • Their own liquidity fund would provide the region with its own emergency finance facility

10. Asian Monetary Fund (AMF)Roadblocks • Opposition by United State, European Union, and IMF • Uneasy relationship between China and Japan complicates political and security issues • The ambitions of Asia’s two largest economies prevent either one from taking the lead on financial issues. • South Korea is unwilling to play second fiddle to either Japan or China

11. Asian Monetary Fund (AMF)Roadblocks (Continued) • Japan wishes to maintain its status in the region, while at the same time not provoking criticism in Washington • Not a widely accepted player in Asia • Unclearly ultimate objectives of CMI arrangement • Difficult to coordinate the activities of the CMI with other regional arrangements • Such as APEC • The regional actors still face a number of difficulties in transforming the BSA’s in to an AMF

12. Asian Monetary Fund (AMF)Other efforts • Mushrooming of bilateral free-trade agreement • In Nov. 2000 China suggested an integration: An Asean-China Free-trade area. • East Asian nations are growing their foreign reserves • South Korea’s reserves increased $20 Billion in 2000 • China’s reserves increased $40 Billion in 2000 • Common Asian Bond Market

13. Asian Monetary Fund (AMF)The Vision • Creation of a European Union-type regional monetary union and common market • Single currency, like the Euro • Note: Europe needed more than 40 years of regional cooperation to realize a common currency, the Euro • An Asian currency unit could be realized in the next 15 years

14. Asian Monetary Fund (AMF)The Question • Do Asian nations have the strong political will for economic integration and cooperation? • Yes. The Chiang Mai Initiative demonstrates a political will to forge greater financial cooperation • Ultimately, can China and Japan be economically integrated to provide the economic leadership? Yes/Maybe

15. Asian Monetary Fund (AMF)The Plan: A Step at a Time • Expand network of bilateral currency swaps into an ASIAN MONETARY FUND • Initial step: turn bilateral agreements into multilateral accord to pool resources • Multilateralization of BSA, potentially become de facto Asian Monetary Fund • AMF pave the way for birth of an Asian Central Bank and set up of an Asian currency unit

16. Asian Monetary Fund (AMF)The Challenges & Barriers • Political tensions derailing cooperation; perceptions of Asia as source of conflicts • Agreement on procedures for collective decision-making mechanism • Economic surveillance system to detect irregularities early and apply swift action • Bureaucratic structure to conduct detailed economic surveillance and policy dialogue

17. Asian Monetary Fund (AMF)More Challenges & Barriers • Improvement in the quality, openness, transparency, and usefulness of economic data in the region • Reforms of lax banking supervision • Strengthen capital-market regulation • Uniform accounting standards • Restructure corporate governance • Deal with corruption issues

18. Asian Monetary Fund (AMF)Meanwhile: Other Initiative • Creation of the Asian Bond Market • Ensure Asia collects more of its own savings and channels these into local investments instead of relying on borrowing from outside the region • Asia has one of the highest rate of savings which at present are funneled into global markets and then back to the region in the form of higher premium loans

19. Asian Monetary Fund (AMF) Question?