SEOUL – East Asia could learn two valuable lessons from the eurozone crisis. First, do not rush the process of financial and monetary integration; and, second, develop adequate institutional frameworks before proceeding.
In fact, East Asian countries are unlikely to move toward a regional fixed exchange-rate system or a monetary union with a single currency in the immediate future, owing to the region’s great diversity in terms of economic and political conditions. Perhaps, in a few decades, the region’s countries will develop institutions to promote financial integration, such as a single bank supervisory agency of the type that the European Union is now creating.
Nevertheless, Asian policymakers should improve cooperation mechanisms designed to prevent and manage crises. Most promising is the Chiang Mai Initiative Multilateralization (CMIM) of the ASEAN+3 – the 10 members of the Association of Southeast Asian Nations plus China, Japan, and South Korea. This $120 billion regional reserve pool was launched in 2010 to provide short-term liquidity to members in an emergency.
The ASEAN+3 is now strengthening the CMIM by doubling the total fund size to $240 billion. The group also agreed to enhance the CMIM’s flexibility by reducing the minimum portion of crisis lending to be tied to the International Monetary Fund’s lending program from 80% to 70%.