On October 13 and 14, the Brookings Institution and the Asian Development Bank Institute (ADBI) co-hosted a high-level international workshop on “Financial Regionalism: Lessons and Next Steps.” The workshop served as a forum for discussion on the prospect of a regional financial architecture following the recent establishment of the European Financial Stability Facility (EFSF), the multilateralization of the Chiang Mai Initiative (CMIM), the founding of an independent regional surveillance unit in Asia, as well as recent proposals about global financial safety nets. Strategically scheduled between the International Monetary Fund (IMF) and World Bank Annual Meetings and the Seoul G-20 Summit, the workshop promoted the exchange of ideas by about 40 senior experts, academics, U.S. policymakers and civil society representatives.
Dissatisfaction with the global financial architecture has encouraged the temptation to address financial issues at the regional level. Europe, with the establishment of the EFSF, and Asia, with the CMIM, demonstrated that regional financial arrangements (RFAs) have become a reality. Yet, it is unclear whether RFAs should complement, or serve as an alternative to, global monetary institutions. A key question is whether RFAs can evolve towards a form of “open” or “closed” regionalism. The Brookings and ADBI workshop provided a sounding board for participants to debate and discuss issues related to RFAs and their relationship with the IMF.
Generally, the participants focused on four broad issues that help set the preconditions for a harmonious coexistence and cooperation between regional and global financial institutions: first, the merits of “linking” with and complementing vs. “delinking” from and substituting the IMF and its lending programs; the issue of the IMF’s neutrality as a global actor in terms of governance, Asian representation in, and ownership of, the IMF; and, finally, the role RFAs may play in the surveillance of the global economy, as a complement to the IMF, because of their proximity to the “action.”
Specifically, the agenda set the discussion around the following five sub-themes:
(1) Financial Regionalism and Monetary Union in Europe. Key topics included: The adequacy of the European regional response to the Greek crisis and the euro area turmoil; the main requirements to ensure sustainability of a monetary union; the merits of establishing a full-fledged European Monetary Fund; and the regional integration of banks and the relationship between Europe and the IMF.
(2) Bilateral and Plurilateral Swap Lines, and the Chiang Mai Initiative. Key topics included: Why the CMI/CMIM was not activated during the recent international financial crisis; whether or not the increased reliance on bilateral currency swaps with central banks erodes the function that the IMF’s global membership has formulated for it; the role of the IMF and systemically-important central banks in response to future systemic events; and whether the relationship between CMIM and the IMF should be a form of “closed regionalism” or “open regionalism.”
(3) Economic and Financial Integration in Asia. Key topics included: The next steps in Asian regional integration; what forms of monetary cooperation are envisaged for Asia in the near future; and which countries may be leading the process.
(4) Financial Regionalism and the IMF. Key topics included: What standards should be employed to assess the consistency of regional arrangements with the broader multilateral architecture; what amendments to the IMF charter, policies and programs can be envisaged to make the Fund an effective and responsive interlocutor of regional financial arrangements; the argument for, and the potential effectiveness of, a global financial safety net.
(5) Financial Regionalism from the U.S. perspective. Key topics included: The prevailing views in the U.S. with regard to financial regionalism; how can the U.S. ensure that regional financial arrangements, while fully-owned by their members, are consistent with the global financial architecture; and the problem of inherent competition between institutions in lending standards.