Prospects for Asian Monetary Cooperation after the Asian Financial Crisis: Pipedream or Possible Reality?

This paper reassesses the prospects for greater monetary integration in Asia in the wake of the Asian financial crisis of 1997. The Asian crisis highlighted the absence of well-developed supranational institutions in Asia to provide early warning signals of impending currency or balance of payments problems, access to unconditional funds to cope with financial problems, and a common defensive mechanism to deal with speculative movements in exchange rates. Since 1997 there have been a number of initiatives to enhance monetary cooperation in the region including a Japanese proposal for an Asian Monetary Fund, the Chiang Mai Initiative at the Asean+3 meeting in May 2000, the Kobe Research Project, and the currency swap agreements and surveillance machinery initiated at the Asian Development Bank Meeting in Honolulu in May 2001. We find that whilst a common monetary and exchange rate policy in EA is unlikely in the foreseeable future, until the net economic benefits of giving up unilateral exchange rate regimes are more apparent, a good case can be made for placing responsibility for the functions of macroeconomic surveillance and regional resource pooling within a permanent institution which could evolve over time into a fully-fledged Asian Monetary Fund with its own Asia-specific rules on conditionality. A hen and a pig are negotiating to solve the food shortage. The hen makes a suggestion: "I will supply the eggs if you will supply the bacon." The pig ponders this for a moment and replies: "but yours is a contribution, mine is a total commitment." (Kofi Annan)