Author: Eko Saputro, Deakin University
Although the Chiang Mai Initiative Multilateralisation (CMIM) has not yet been activated, its governance framework seems to be constantly evolving.
The latest development is the involvement of ASEAN+3 central bank governors in the CMIM’s decision-making process.
Fundamental issues like the size of the CMIM’s pooling fund, the contribution of each member country and membership status were only determined by the ASEAN+3 finance ministers before the new arrangement was agreed upon. The central banks were therefore absent from these decisions about the fundamentals of the CMIM. Central bank representatives were only able to participate in operational issues, such as the execution of drawing and in the event of default. The decision to include central bank governors in the fundamental decision-making process of the CMIM is thought to stem from their engagement in the annual meeting of the ASEAN+3 finance ministers, beginning at the 15th meeting last year in Manila.
The involvement of central bank governors in the CMIM decision-making process could potentially support the finance ministers in producing more accurate decisions. With their knowledge and experience in monetary policy, the ASEAN+3 central bank governors are expected to provide a new, and welcome, perspective on the essential issues of the CMIM.
Yet these new arrangements could also lead to a more ineffective decision-making process. The amendment of the CMIM decision-making body has increased the number of players from 13 (finance ministers only) to 27 (finance ministers plus central bank governors), including the Hong Kong Monetary Authority (HKMA). The decision-making process for fundamental issues within the CMIM is therefore expected to take much longer if the consensus mechanism remains in place. The process will take even more time if the relevant meetings require the physical presence of central bank governors. As a result, ineffective governance could emerge as a problem for the CMIM as a regional crisis mechanism. This could potentially delay decision making unless the voting mechanism currently used for operational issues is also applied for dealing with the fundamental issues..
The move will also have implications for national coordination between financial and monetary authorities within ASEAN+3 member countries. With the new arrangements, there is a possibility that a country’s central bank governor and finance minister could have a different perspective and stance on fundamental issues within the CMIM. This possibility will become even more acute if the central bank is an independent body, like in Indonesia. As an independent entity, the governor of Bank Indonesia is able to independently support or condemn proposed actions. To avoid this potential divergence between financial and monetary authorities of a particular member country, national coordination will need to be better developed.
Beyond that, it is still not clear whether the HKMA’s chief executive will also be included in the new decision-making process for fundamental issues. If this position is included, China could potentially become the most influential country in the CMIM, since it will have three representatives in the decision-making body: its finance minister, the governor of the People’s Bank of China and the head of the HKMA. The three Chinese representatives could thus support each other in lobbying for certain decisions. And if it is the case that a voting mechanism is applied to decide on fundamental issues within the CMIM (it is not openly known whether voting takes place for fundamental issues), China’s position in the CMIM will be stronger since it is believed that the HKMA’s leader would likely vote in the same manner as the mainland authorities. This will be another challenging situation for Japan, in particular, which regularly competes against China for influence in the ASEAN+3 financial domain.
Finally, putting central bank governors into critical decision-making processes related to ASEAN+3 financial cooperation could be seen as a pathway to more integrated monetary policy in the region. Although the CMIM is still limited to providing liquidity during times of crisis, the decision-making process of the CMIM could become a medium for central banks governors to formulate a new governance framework for tighter regional monetary cooperation.
Eko Saputro is a PhD candidate at the School of Humanities and Social Sciences, Deakin University.