Helmut Wagner, University of Hagen and Center for East Asia Macroeconomic Studies: This is a well-written paper with a clear message: Asia is special. Asia has gained in economic importance. Asia is not adequately reflected in the actions and quota regulations of international financial organizations. Therefore, Asia needs better financial arrangements of its own to protect itself from possible future financial crises. This in turn means that it should decouple itself from the West / IMF (at least in the medium to long term). To start with, the Chiang Mai Initiative Multilateralization (CMIM) should be fundamentally reformed and lead to an Asian Monetary Fund (AMF), possibly in the longer term also creating a separate common Asian currency. The experiences in Europe could serve as illustrative material in this context.

In Section 2, the authors describe the reasons they see for a fundamental reform of the financial arrangements in Asia and the creation/development of an AMF. The main reason is seen in the alleged failure of the IMF. They include the “unfair voting structure in the Washington, DC–headquartered organization”; the IMF's policy recommendations and mandates described as “‘formulaic’ and imbued with an economic philosophy of untrammeled free market capitalism that may not in all respects be appropriate to Asia with its state-led economic model”; and the question of “whether the IMF has enough resources to rescue countries in the event of a financial crisis.” This is always accompanied by the still lingering humiliation by the IMF's harsh and allegedly “wrong” treatment of Asian crisis countries in the 1997–98 Asian financial crisis (AFC) (“misdiagnosed the causes of the Asian financial crisis and came up with inappropriate policies that may have worsened it”). It is somewhat underexposed here that the IMF has changed considerably in its views and philosophy since 1998. In any case, the call for Asia's ultimate disconnection from international financial organizations is worrying, as it promotes the current tendencies toward deglobalization and the turning away from multilateralism promoted by the Trump Administration and others. However, the authors see an Asian Monetary Fund as a way to better represent Asia's interests and make better use of local knowledge. Counter-arguments against the establishment of an AMF are briefly mentioned, but are rejected quite provisionally (i.e., not analyzed in depth).

In Section 3, the authors consider briefly the development of European monetary integration and the institutional design of the European Stability Mechanism as well as the differences from the CMIM, before going into the question of what Asia can learn from Europe and its experiences. Here they draw five conclusions: transparency and accountability matter; beware of a common currency; the IMF could play a positive role in financial crisis management and be a partner to CMIM (at least in the short to medium term; in the longer run, the CMIM/AMF should eliminate its dependence on the IMF); strong leadership is needed in preventing and fighting financial fires, while knowing that cooperation between China and Japan may be difficult; and one size does not fit all—Asia is different.

What is striking is that the authors are apparently committed to but also optimistic about a speedy reform of the CMIM and the establishment of an efficiently functioning AMF. Nevertheless, the benchmark model of European monetary integration cannot simply be replicated. European monetary integration is the result of more than half a century of well-founded and mutually reinforcing integration steps (from the creation of a free trade area, then a customs union, then a common market, an economic union and only then—as a kind of “crowning glory”—to the creation of a monetary union; see, e.g., Hochreiter and Wagner 2002; and Wagner 2005). And this sequential, multi-stage process was anything but problem-free / linear. The impetuous endeavor to establish an own stable common financial system in a shorter period from loose trade and financial relations was already apparent in Asia after the AFC (particularly in Japan), but must ultimately fail. As long as the heterogeneity in Asia is as great as it still is (politically, economically, and in terms of developmental status), it will be difficult to create a stable, functioning AMF. I think an AMF, and even more so an Asian Monetary Union (AMU), could, if at all, in the near future only be established on a small scale (initially by a few structurally similar countries!), and then gradually expanded over time as development convergence takes place in Asia. However, the heterogeneity (including structural heterogeneity) is currently still immensely high in Asia. For this reason, expectations regarding a solution for all of Asia should be somewhat dampened (see also Wagner 2002).

Moreover, a number of aspects could or should have been emphasized or elaborated in the paper, which were or are relevant for the establishment of a monetary fund:

  1. The rise of speculative attacks in the course of financial globalization;

  2. EMU and ESM as a shelter from speculative attacks;

  3. AMF as a shelter from humiliating paternalism by the IMF (United States) (and as a measure to overcome the trauma of 1997–98);

  4. AMU/AMF plans after the AFC were postponed and successfully replaced by building-up huge foreign reserves in (many) Asian countries (not enough protection?);

  5. There is a more critical relationship (in terms of leadership) between Japan and China (compared with the relationship between France and Germany in the European integration process);

  6. Current prioritization of bilateral trade and credit (aid) agreements by China over strengthening a EU-type Asian integration process; and

  7. System competition between the democratic, market-oriented systems in Japan/Korea and/versus the Chinese non-democratic system with stronger planning elements.

All in all, although the paper may at times seem a little one-sided and pointed in its tenor (arguing that Asia is being neglected by the West and the international financial organizations dominated by it), it can ultimately be seen as an interesting and balanced, albeit rather brief, presentation of the financial institutions and sensitivities in Asia and Europe and of ideas for reforming CMIM and moving toward an Asian monetary fund (and beyond). That Asia should create a regional financial arrangement that has its main focus on Asian needs sounds plausible, although implementation of a comprehensive, stable, and effectively autonomous AMF in the short term seems to be extremely ambitious, not to say unrealistic.

References

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Growth Effects of “Heterogenous” Economic Integration: The Example of EMU-Enlargement
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Wagner
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