Monetary cooperation in East Asia

The crisis in 1997 has strengthened the interest of East Asia to established a closer regional monetary cooperation. Dissatisfied with the IMF, Japan has proposed to establish the Asian Monetary Fund for macroeconomic and financial surveillance, for providing policy dialogue and for pooling resources at regional level. The AMF proposal was presented at the Annual Meetings of the IMF and the World Bank in Hong Kong in 1997. The US, Europe and China strongly opposed the idea and forced Japan to drop the proposal. With the drop of the AMF proposal, the ASEAN + 3 takes the initiative to sponsor the regional monetary cooperation. As it is not a nation-state, Taiwan is excluded from ASEAN + 3 forum even though it is an economically important country and a founding member of other economic for a in Asia. Modest amount of liquidity is provided through two channels, namely, a set of bilateral swap arrangements mechanism, under the Chiang Mai Initiatives framework, and Asian Bond Funds administered by the BIS Regional Office in Hong Kong. The size of the funds, however, is too small for prevention and management of financial crisis or to fend-off the reversal capital flows as happened in 1997. The use of bilateral swap facility is also rigid as it requires approval from each provider and the IMF conditionality. (C) 2005 Elsevier Inc. All rights reserved.