Lessons for Asia’s financial development

This long exposure picture shows apartment buildings and office blocks clustered tightly together in Hong Kong's Kowloon district on October 28, 2013. (Photo: AAP)

Author: Barry Eichengreen, UC Berkeley

The Asian financial crisis of 1997–98 and then the global credit crisis of 2008–09 raised new questions about the connection between financial development and economic growth. The Asian crisis caused observers to ask whether the region’s bank-based financial systems maximised brute-force capital accumulation at the cost of efficiency and stability.

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China’s century or America’s?

A Chinese clerk counts yuan and dollar bills at a bank in Tancheng county, Linyi city, Shandong province, on 12 May 2011. Whether America's dominance will continue this century is disputed by many analysts. (Photo: AAP)

Author: Barry Eichengreen, UC Berkeley

Everyone by now has grown accustomed to, if not physically weary of, articles extolling China’s economic dynamism and rehearsing America’s decline.

While the US is only starting to recover from its most serious recession in nearly 80 years, China glided through the global financial crisis largely unscathed. Read more…

What China is after financially

President Barack Obama and first lady Michelle Obama stand with China's President Hu Jintao at the Grand Staircase as they arrive for a state dinner at the White House in Washington, Wednesday, Jan. 19, 2011. (Photo: AAP)

Author: Barry Eichengreen, Berkeley

The big financial news in the run-up to Chinese President Hu Jintao’s recently concluded visit to the United States was Beijing’s decision to allow the state-controlled Bank of China to offer renminbi-denominated bank accounts and currency conversion services in New York.

Some observers hailed this as an important step in positioning the renminbi to become a true international currency. Others dismissed it as a mere publicity stunt designed to deflect attention away from China’s refusal to let its currency appreciate against the dollar. Read more…

China’s exchange rate: The elephant in the G20 room

The Chinese Renminbi will be key to discussions on global floating currencies. (Photo: Shiro Armstrong/EAFQ)

Author: Barry Eichengreen, Berkeley

As the G20 assembles in Seoul, it has a full plate. There is the need for continued progress on strengthening financial regulation – on getting countries to harmonise their still divergent approaches to regulatory reform and to push the Basel III reforms of capital adequacy through to their logical conclusion. There is the continuing inadequacy of international arrangements to wind up insolvent cross-border financial institutions. There is the need to coordinate monetary and budgetary policies so as to reconcile fiscal consolidation in some countries with the need for continuing policy support from others for what remains a less-than-certain recovery. There is the need for agreement on the global financial safety net, the pet project of the Korean hosts. There is the need to push ahead with quota reform at the IMF and to agree on reducing the number of European seats on the fund’s executive board.

No doubt the G20’s communiqué will touch on all these areas. But there is also the elephant in the room, namely China’s exchange rate. Read more…

Can Asia free itself from the IMF?

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Author:  Barry Eichengreen

There has never been a question about the ultimate purpose of the Chiang Mai Initiative (CMI), the system of Asian financial supports created in 2000 in that Thai city. That purpose, of course, is to create an Asian Monetary Fund, i.e., a regional alternative to the International Monetary Fund (IMF), whose tender ministrations during the 1997-98 financial crisis have not been forgotten or forgiven.

So far, however, the CMI has been all horse and no saddle. Its credits and swaps have never been activated. The distress following the failure of Lehman Brothers would have been an obvious occasion. Yet, revealingly, the Bank of Korea, the central bank hit hardest, negotiated a $30bn foreign-currency swap with the US Federal Reserve, not with its ASEAN+3 partners.

Now, we are told, ASEAN+3 has achieved another great breakthrough, the so-called Chiang Mai Initiative Multilateralisation (CMIM), aimed at turning its bilateral swaps and credits into a regional reserve pool. The goal was set in 2005, and last month ASEAN+3 finance ministers negotiated the details.
They specified contributions to their $120bn pool, set down borrowing entitlements, and allocated voting shares.
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The G20 and the crisis

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Author: Barry Eichengreen

One of the least unanticipated but potentially most momentous consequences of the Great Global Credit Crisis of 2008 is the coup staged by the Group of Twenty.

The G20 has seized power from the G7/8 as the steering committee for the world economy. If you didn’t believe this before, just compare the attention garnered by the G20 summit last November with the muted response to the G7 finance ministers’ meeting in February in Rome.

R.I.P, G7

No one contemplating global financial reform thinks that the task can still be organised, much less executed, within the cosy confines of the G7. No one who seeks to reform the IMF and the World Bank thinks that the solution can still be hashed out by the G7. No one who is serious about coordinating a global monetary and fiscal response to the deepest recession since World War II thinks that this is something that the G7 can engineer. Whether the task is developing ideas, reaching consensus on their desirability, or moving from ideas to implementation, the G20 – which has working groups active in all these areas – is where the action is.

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