An Asian Monetary Fund in the Making?

SCID Working Paper 378




An important new financial arrangement is taking shape in East Asia. By June 2009, the “ASEAN+3” states—China, Japan, South Korea, and the ten member states of the Association of Southeast Asian Nations (ASEAN)—will establish a new fund of up to $120 billion. The fund will comprise regional reserves, and its aim will be to provide short-term liquidity support to participating countries in need. It represents the latest step in Asian regional financial cooperation and a partial resurrection of the concept of an Asian Monetary Fund, which the Japanese government proposed unsuccessfully during the 1997 financial crisis. This paper discusses the origins of the ASEAN+3 fund, outlines its basic features, and analyzes some of the many challenges that its architects will face as they try to create an effective regional mechanism for emergency finance.

The ASEAN+3 fund has the potential to play an important constructive role in international finance, helping mobilize Asia’s vast reserves to prevent crisis and contagion. However, designing and operating an effective fund will not be easy. ASEAN+3 officials face a number of technical and political obstacles. Establishing a sound financial mechanism will require striking a workable balance of influence on the fund, enacting clear and credible procedures, strengthening regional surveillance, and dealing with the touchy issue of conditionality. Last but not least, the new fund must interact productively with the existing institutions of global finance, including the International Monetary Fund. These challenges are not insurmountable, but they require careful attention and concerted action if the fund is to realize its potential.