It's Time To Revive Plans For An Asian Monetary Fund

The Asian Monetary Fund was first proposed by Japan as Asia sought alternatives to the IMF in response to the crisis. It was meant to anchor regional financial stability by providing emergency lending, facilitating currency swap arrangements and pooling regional currencies to address balance-of-payments crises.

The US and IMF opposed the idea, claiming that an Asian fund would undermine the IMF's role in the region. The real reason, however, was geopolitical: the US was sceptical of a parallel institution over which it would have no oversight.

Despite Asia's long-standing disappointment with existing Western-led financial architecture, the scope of other regional initiatives has been limited by intraregional rivalries, the lack of a true regional power and a reluctance to damage ties with the US and IMF.

Countries have been hesitant to commit to binding regional agreements due to Asia's heterogeneity in terms of economic size, types of political systems, attitudes towards the free market and significance of national sovereignty. As a result, most Asian central banks self-insure by accumulating reserves, to provide dollar liquidity as well as guard against speculative attacks on their currency.

But what once made cooperation difficult can also be Asia's strength. With Asia's significant growth and China's rising influence on the world stage tilting the balance of power over to the east, there is no better time to revive the AMF.

Despite the West's objections, an AMF should be the way forward as a regional safety net. It can coordinate macroeconomic policy responses during crises and, like the IMF, provide emergency lending to troubled countries. It can oversee regional cooperation and facilitate mutual understanding of each country's interests.

Most importantly, it can function as an institution created by Asia, for Asia – one designed to serve Asian interests, free from an IMF that historically underrepresents the region. Malaysia has more than once called on the region to create an AMF to enhance its economic independence, and has won China's backing.

Some might view the AMF as redundant and point to existing regional financial safeguards. For example, the Chiang Mai Initiative Multilateralization is a currency swap agreement among the ASEAN+3 countries. However, funds are not readily accessible but are subject to each central bank's approval. Furthermore, there is an“IMF link” conditionality, requiring IMF consent to access any emergency credit above 40% of the total credit line.

Countries have preferred to rely on other sources of dollar liquidity such as bilateral swaps with the Fed during times of crisis such as the Covid-19 pandemic. This shows that such regional safety nets are still insufficient.

Some may argue that the AMF will further fragment global financial architecture, since it would represent a shift towards regionalism, eroding the IMF's singular role as lender of last resort. A parallel regional institution could divert resources from the IMF and weaken its authority to enforce policy reforms during crises.