The crisis had its roots in an excessive reliance on short-term foreign debt, stimulated by fixed exchange rates and inconsistent monetary policies, intermediated through fragile and poorly supervised banks.  By contrast, fiscal policies were not to be blamed. There was also extreme anger at the high-handed treatment countries received from the International Monetary Fund.

Based on this assessment, the regional policy response was two-fold. One pillar was the Asian bond market initiative (ABMI), designed to deepen local currency bond markets in the major emerging markets of the region, so as to provide an alternative to bank financing. The second was the Chiang Mai Initiative (CMI). While this originally consisted of bilateral swap lines among regional central banks, it has now been expanded in scale and has also been multilateralised to provide a regional source of liquidity to complement support from the IMF.

The third element of the region’s response was the massive resort to ‘self-insurance’ through the accumulation of foreign exchange reserves in a number of countries. This has triggered fierce controversy, particularly between China and the US, on the role of this Asian ‘savings glut’ as an underlying driver of loose monetary conditions.

So what should be done now? And is it likely that the other Asian members of the G20 (India, Indonesia and Australia) will feel able to make common cause with Japan, Korea and China for a distinctive Asian view on international monetary and financial reform?

All G20 countries clearly desire a monetary order that supports orderly, non-inflationary  global growth. however, of the six Asian members of the G20, only China and Japan seem likely to have chronic saving surpluses into the indefinite future. The remaining four will have an interest in a global monetary order which remains conducive to vibrant flows of cross-border capital.

China has been most aggressive in condemning  the post-Bretton Woods reserves ‘system’ (or non-system) as providing the United States an unacceptable ‘exorbitant privilege’ as reflected in the scale of its current account deficits.

While there can be legitimate criticism of the conduct of US monetary and fiscal policies over the last two decades, these have relatively little to do with the role of the US as the supplier of reserves. Indeed, one could just as well argue that China has enjoyed an equivalent privilege in its ability to become the workshop of the world while maintaining a depreciated real exchange rate. It seems to me unlikely therefore that Chinese efforts to replace the dollar will, by themselves enjoy much support.

As pointed out by Barry Eichengreen, any displacement of the dollar is likely to be a market-driven response, based on global perceptions of the quality of economic management in the US. There is also a logical fallacy at the heart of the Chinese critique. Supplying the world with dollar reserves does not oblige the US to run a deficit on its current account, merely a deficit on its basic balance.

The recent resort by Japan to currency intervention suggests that even the advanced countries are beginning to feel the burden of major swings in nominal exchange rates. Yet it is difficult to believe that the genie of mobile capital will easily be put back in the bottle. One should not forget that, for all its imperfections, it is under the post-Bretton Woods non-system that Asia has prospered.

It is unlikely that there will be a common ‘Asian’ view on international monetary reform at the G20. China apart, most of the other members remain at ease with a US anchored monetary system, with the comfort of alternatives, initially the euro, and in due course the renminbi. What is desirable is to strengthen the safety net available to emerging markets so they feel less need to accumulate reserves. This initiative, being pushed by Korea, probably represents the limits of what is feasible, and perhaps even what is desirable. And as for the earlier Asia-specific reform agenda, it is no longer where the action is likely to be.

Suman Bery is director-general, National Council of Applied Economic Research, and member of the Prime Minister’s Economic Advisory Council.

This is an article from the most recent edition of the East Asia Forum Quarterly: ‘Asia and the G20’.