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Deepening Asian Regional Financial Cooperation (Economic Perspective)

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This year marks the 25th anniversary of the Asian financial crisis. After the crisis, while strengthening financial reform and supervision, Asian countries are committed to further promoting the construction of regional financial cooperation mechanisms. Currently, the global economic situation is full of challenges. Cooperating to deal with difficulties should continue to be the common choice and action of Asian countries.

An important reason for the Asian financial crisis in 1997 was the superimposed impact of premature capital account opening and inflexible exchange rate system. Before the crisis broke out, the rapid opening of capital accounts in some Asian countries led to large-scale capital inflows, fueled domestic asset prices, and intensified domestic inflationary pressures in the face of economic overheating. At the same time, most countries adopt a pegged exchange rate system to the US dollar. In order to stabilize the exchange rate, the central bank often provides implicit guarantees for domestic bank loans, and the banking industry has a serious double mismatch of currency and maturity. Foreign debts continued to accumulate, the vulnerability of the domestic financial system increased, and the currency speculation by the US financial giants ignited the fuse of the crisis. Banks ran, capital fled instantly, and the domestic currency depreciated sharply.

After the crisis, most Asian countries actively adjusted their policies, and their ability to resist risks has been greatly enhanced. All countries have generally adopted a more flexible exchange rate system, the double mismatch problem in the early banking system has been basically overcome, financial stability has been greatly improved, and the ability to deal with external shocks has been improved. The balance of payments has generally improved. Currently, the average foreign exchange reserves of the 10 ASEAN countries and China, Japan, and South Korea account for 35% to 40% of GDP. Abundant foreign exchange reserves not only enhance the ability to withstand external financial shocks, but also provide conditions for regional countries to better meet diverse financing needs.

The Asian financial crisis gave birth to the Asian regional financial cooperation mechanism. In May 2000, the Finance Ministers Meeting of ASEAN, China, Japan and South Korea (10+3) signed an agreement to establish a regional currency swap network, namely the "Chiang Mai Initiative". Later, the "Chiang Mai Initiative" was upgraded to the Chiang Mai Initiative Multilateralization Mechanism, which provides financial support to member countries when they are on the verge of a liquidity crisis or when a crisis occurs. The current fund size is 240 billion US dollars. In order to meet the new needs, in 2021, the member states will revise the terms of multilateral agreements, update loan conditions, increase financing currencies, etc., bringing new possibilities for expanding funding sources. Countries are also expanding financial cooperation in areas such as disaster financing support, macroeconomic framework, green and sustainable development, and digital transformation.

Regional economic integration is the basis for deepening regional financial cooperation. In recent years, intra-regional trade and investment in Asia have increased significantly, and the industrial chain has continued to deepen. At present, intra-regional trade in Asia accounts for about 58% of total trade, and intra-regional investment accounts for more than half of total investment. The improvement of the degree of regional economic integration has provided fundamental support for the promotion of regional financial integration, and also made countries put forward new requirements for policy coordination and crisis relief.

At present, the COVID-19 epidemic is still repeatedly delayed around the world. The monetary policies of major countries have become more spillover and the contagion of the financial crisis has become more contagious. Countries in the region are facing multiple challenges such as financial stability and energy security in order to achieve sustainable recovery. In this regard, Asian countries should further deepen regional economic and financial cooperation, work together to enhance the ability to resist financial risks, and build a more complete Asian regional financial safety net.

(The author is Director of the Center for International Finance, Institute of World Economics and Politics, Chinese Academy of Social Sciences)

"People's Daily" (version 14, November 23, 2022)

(Editors in charge: Yuan Bo, Hu Yongqiu)

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