For Economics and Finance students

1. ASIAN MONETARY COOPERATION

2. WHAT IS MONETARY COOPERATION?
 Monetary cooperation is the cooperation among
monetary authorities of different countries, often through
forums, to prevent and cure the monetary problems
among them, thus help stabilize further economic growth.
 In the academic aspect, there are studies revealing the
reasons of Asian financial crisis and suggesting monetary
cooperation as an effective way to prevent further
financial crises in this region.
 An example of such studies is Oh (2000). In fact, before
the financial crisis, Agnes (1997) had pointed out the lack
of monetary cooperation in Asia

3. WHAT ARE THE FORMS OF MONETARY
COOPERATION?
 There are various forms for monetary cooperation.
 First, information exchange concerning central bank
functioning is the cooperation form with the lowest
degree of integration.
 Then, there are policy cooperation at macro level,
resource provision, banking supervision and financial
regulation.
 Finally, monetary union or monetary integration is the
highest integrated form of monetary cooperation, which
involves a common currency, common fiscal policies, and
common foreign exchange arrangements in the region.
 The European Monetary Union is an example of
monetary union.

4. THE HISTORY OF ASIAN MONETARY
COOPERATION
 The beginning of Asian monetary cooperation may
be traced to late 1950s, when discussions of
SEANZA (South East Asia, New Zealand and
Australia), a forum of central banks, focused mainly
at providing training for central bankers. SEACEN
(Southeast Asian Central Banks), a central bank
forum founded in 1966, also focused on such
training and research.

5.  The Executives' Meeting of East Asia Pacific Central
Banks (EMEAP) was established in 1991.
 Since then, it has evolved into the most active forum for
central banking discussions.
 In 1996, EMEAP established two working groups and a
study group to share knowledge and expertise on
financial market cooperation, central bank operations,
and banking supervision issues, respectively.
 One current focus of EMEAP is Asian monetary
cooperation.

6.  The 1997 Asian financial crisis drew great attention
to further progress of monetary cooperation.
 The second EMEAP Governors' meeting in 1997
paved the way for a later meeting organized by IMF,
when more than US$10 billion out of a package of
US$17 facility to Thailand was amassed from
EMEAP members.

7.  In November 1999, the ASEAN+3 (Association of
Southeast Asian Nations, namely ASEAN, and China,
Japan, and Korea) made a formal Joint Statement on
East Asia Cooperation.
 This statement led to the Chiang Mai Initiative in May
2000.
 The Initiative states to establish an ASEAN Swap
Arrangement that includes all ASEAN members and to
augment the ASEAN Swap Arrangement by a net work of
bilateral swap and repurchase arrangements among
ASEAN countries, China, Japan and Korea.
 These mechanisms aim to provide liquidity support to
members in the event of temporary balance of payment
difficulties.

8. WHAT ARE THE CURRENT FOCUSES OF ASIAN
MONETARY COOPERATION?
 Because large diversity exists in the economic
development stages of different countries, a
common Asian currency is not practical at least at
present.
 Asian monetary cooperation is currently focused on
the prevention of future financial crises and
construction of the rescue mechanism should
another crisis occur.

9. The emphases are:
 Exchange of economic information and best
practices.
 Regional training in finance and macroeconomics to
upgrade the quality of both economic research and
macro and financial management.
 Arrangements to ensure exchange rate stability and
improved regional surveillance.

10. PROS AND CONS OF THE PROPOSED ASIAN
MONETARY FUND
 As early as in the Asian financial crisis in 1997, Japan
proposed to establish a regional institution, the Asian
Monetary Fund (AMF), to implement surveillance and
regional self-helping practices in the face of financial
turmoil.
 However, this proposal was rejected by the United
States and the IMF, on the ground that such an
organization would just overlap the IMF's tasks in this
region. In addition, an AMF may cause "moral hazard" of
profligacy in individual governments since regional
bailouts would be more easily available through the AMF.

11.  Recently, the discussion of an AMF has regained some
new strength, partially because IMF's bailouts to some
countries have failed to achieve the presumed results.
 Proponents of the AMF argue that the former rejection it
gets may due to some political factors, such as
unwillingness of the United States to reinforce the
economic power of Japan and the organization's
inevitable involvement in the China-Taiwan issue.
 In their opinion, an AMF would have sufficient resources
for rescue and would possess better expertise of regional
surveillance than IMF does.
 Since the European monetary integration coexists
smoothly with IMF, there is no reason for declining an
AMF.

12.  One relevant study is Goad (2000), which implied that the
de facto obstacles against the establishment of AMF lie in
determining the leading country in this organization.
 The superpower would allow neither its big competitor
Japan nor the socialist country China to head the
discussion of Asian financial affairs.
 On the other hand, by circumventing the political issues
that would be inevitably encountered by the Asian
Monetary Fund, the present ASEAN+3 is an appropriate
framework to discuss Asian monetary cooperation topics.
 The Chiang Mai Initiative is in fact a significant step in
building such a framework.