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.
Eko, nice article. Thanks.
As Hong Kong’s contribution and therefore voting weight are a part of the mainland’s, HKMA will by definition vote the same way as the PBOC.
In any case the finance minister would have their central bank’s advice when making the decision so it is not clear the decision would be much delayed.
Eko, do you know whether it is the finance ministry or the central bank which is to provide the funds committed to?
It may vary from country to country but I suspect it may be the finance ministry for big three northeast Asian contributors. In which case any disagreement between the finance ministers and their central bankers would be pretty speedily resolved in favor of the former.
Hi Joel, thanks for the comments,
First, I agree with you that HKMA’s voting weight should be a part of the Mainland since the Hong Kong’s contribution is a part of the China’s if the voting mechanism is applied in the new arrangement of fundamental issues decision-making process. However, it is not publicised whether the new arrangement will apply Voting mechanism, in addition to the previous mechanism that only used Consensus. If Consensus remains the only way for the fundamental issues decision-making process (no voting mechanism), and there are 14 central bankers in addition to 13 finance ministers, then the process will potentially take more times.
To my humble understanding, without placing central bank governor into CMIM decision-making process, finance minister will always seek central bank’s advice since the CMIM issues are related with central banks’s business. The issue is much more about the decision that potentially will be delayed due to an increase in the number of decision-makers.
Second, you are right that the commitment for the fund could be from finance ministry or central bank. What I am concerned here is if the central bank is an independent entity like in Indonesia. Different from BOJ that behaves as an agent for the Japanese finance ministry, BI may have different stance from Indonesian finance ministry since it is an independent body. Is there any guarantee that BI (which manages Indonesian contribution) will always be in line with finance ministry during times of crisis?