Chiang Mai Initiative

Participants of the Chiang Mai Initiative: regular ASEAN states marked light green; Plus Three states marked green

The Chiang Mai Initiative (CMI) is a multilateral currency swap arrangement among the ten members of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China (including Hong Kong), Japan, and South Korea. It draws from a foreign exchange reserves pool worth US$120 billion and was launched on 24 March 2010.

The initiative began as a series of bilateral swap arrangements after the ASEAN Plus Three countries met on 6 May 2000 in Chiang Mai, Thailand, at an annual meeting of the Asian Development Bank. After 1997 Asian Financial Crisis, member countries started this initiative to manage regional short-term liquidity problems and to facilitate the work of other international financial arrangements and organizations like International Monetary Fund.

History

Conception

Former IMF Managing Director Horst Köhler: "Our advice [to the East Asian region] is to pursue regionalization, not in opposition to the IMF, because the IMF is a global institution, but to do it in a complementary fashion."^[1]

Finance ministers of members of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China, Japan, and South Korea met on 6 May 2000 at the 33rd Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) in Chiang Mai, Thailand, to discuss the establishment of a network of bilateral currency swap agreements.^[2] The proposal was dubbed the Chiang Mai Initiative and intended to avoid a future recurrence of the 1997 Asian Financial Crisis. It also implied the possibility of establishing a pool of foreign exchange reserves accessible by participating central banks to fight currency speculation.^[3] The proposal would also supplement international institutions such as the International Monetary Fund (IMF), which initiated a program to stabilize the collapsing financial system in 1997.^[4][5]

Early critics questioned the reasoning behind the initiative. The Asia Times Online wrote in an editorial published several days after the meeting, "The idea that the existence of a currency swap arrangement or the wider concept of an Asian monetary fund [...] could have prevented the Asian crisis or the worst of it, is both wrong and politically noxious."^[6] After IMF Managing Director Horst Köhler visited five Asian nations, including Thailand, in June 2000, the Asia Times Online denounced his endorsement of "the ill-conceived and likely never to be implemented Asean plus three [...] currency-swap plan".^[7] In a 2001 interview with the Far Eastern Economic Review, Köhler stated that the CMI would promote regional economic cooperation and development and that he would not oppose the formation of an Asian Monetary Union.^[1]

Expansion

As of 16 October 2009, the network consisted of 16 bilateral arrangements among the ASEAN Plus Three countries worth approximately US$90 billion. Additionally, the ASEAN Swap Arrangement had a reserves pool of approximately US$2 billion.^[8]

Multilateralization

In May 2007, at the 10th meeting of ASEAN+3 Finance Ministers the CMI further progress was agreed upon.

In February 2009, ASEAN+3 agreed to expand the fund to $120 billion up from the original level of $78 billion proposed in 2008.^[9][10]

During the April 2009 meeting of ASEAN finance ministers in Pattaya, Thailand, the individual contributions to be made by each member state toward the reserves pool were announced. Each of the six original ASEAN members—Indonesia, Malaysia, Singapore, the Philippines, and Thailand—agreed to contribute US$4.77 billion, while each of the remaining four members would contribute between US$30 million and US$1 billion.^[11] The ten countries were scheduled to meet their partners following the finance ministers' meeting, but the summit's cancellation due to the Thai political crisis delayed the launch of the multilateral agreement to a later date.^[12][13] When leaders of the thirteen countries finally met in Bali in May, they finalized the individual contributions of China, Japan, and South Korea.^[14] This summit also added Hong Kong as a new participant, whose contribution was added to that of China though Hong Kong remained "a monetary administration on its own". Its participation raised China's total contribution to US$38.4 billion, equal to that of Japan, and South Korea, which agreed to contribute US$19.2 billion.^[15]

The Chiang Mai Initiative Multilateralisation (CMIM) Agreement was signed on 28 December 2009,^[16][17] and took effect on 24 March 2010.^[18][19]

^[20]

Participants

Bloomberg estimated that participants of the Chiang Mai Initiative held more than US$4.1 trillion of foreign exchange reserves in 2009.^[21][22]

Flag	Country	Currency	Central bank	2010 Nominal GDP (millions of US$)	2010 PPP GDP (millions of US$)	Financial contribution[23] (millions of US$)
	People's Republic of China and Hong Kong	renminbi and dollar	People's Bank of China and Hong Kong Monetary Authority	5,971,618[Note 1]	10,406,855[Note 2]	38,400[Note 3]
	Japan	yen	Bank of Japan	5,390,897	4,308,627	38,400
	South Korea	won	Bank of Korea	1,007,084	1,457,063	19,200
	Indonesia	rupiah	Bank Indonesia	695,059	1,027,437	4,770
	Thailand	baht	Bank of Thailand	312,605	584,768	4,770
	Malaysia	ringgit	Bank Negara Malaysia	218,950	412,302	4,770
	Singapore	dollar	Monetary Authority of Singapore	217,377	291,712	4,770
	Philippines	peso	Central Bank of the Philippines	189,061	350,279	3,680
	Vietnam	đồng	State Bank of Vietnam	101,987	275,639	1,000
	Cambodia	riel	National Bank of Cambodia	11,360	29,811	120
	Myanmar (Burma)	kyat	Central Bank of Myanmar	35,646	76,240	60
	Brunei Darussalam	dollar	Brunei Currency and Monetary Board	11,963	19,925	30
	Laos	kip	Bank of the Lao People's Democratic Republic	6,341	15,689	30

Notes

1. ^ The individual nominal GDP of the People's Republic of China and of Hong Kong are US$5,745,133,000,000 and US$226,485,000,000, respectively.
2. ^ The individual PPP GDP of the People's Republic of China and of Hong Kong are US$10,084,369,000,000 and US$322,486,000,000, respectively.
3. ^ Hong Kong's US$4,200,000,000 contribution is included in that of the People's Republic of China.

ASEAN

Foreign exchange reserves of ASEAN members

Country	Foreign exchange reserves (US$)	Figure as of
Brunei Darussalam	50,000,000,000	December 2007[24]
Cambodia	2,522,000,000	August 2009[25]
Indonesia	65,844,160,000	November 2009[26]
Laos	TBD	June 2009[27]
Malaysia	96,133,200,000	November 2009[28]
Myanmar (Burma)	3,600,000,000	November 2009[29]
Philippines	44,167,540,000	November 2009[30]
Singapore	184,337,000,000	October 2009[31]
Thailand	137,800,000,000	December 2009[32]
Vietnam	16,500,000,000	August 2009[33]

Vietnam's foreign reserves shrunk from US$23 billion at the end of 2008 to approximately US$16.5 billion in August 2009.^[33][34]

People's Republic of China

China holds the world's largest foreign exchange reserves, which reached US$1 trillion in November 2006.^[35] The figure doubled in the second quarter of 2009 and had risen by almost 14 times within the past decade. According to a Deutsche Bank official, "China's reserves will allow the [United States] to run a higher fiscal deficit than other nations". This deficit was caused by the U.S. government's additional spending in an effort to revive the economy from a recession.^[36] The reserves reached US$2.27 trillion in September 2009, and the country's sovereign wealth fund—the China Investment Corporation—had become more aggressive in its foreign investments.^[37]

^[38]

Japan

Japan possesses the second largest foreign exchange reserves.^[18] It became the second country to reach US$1 trillion in reserves in February 2008. In contrast to China, which places "stringent" control on its currency, the Japanese government has not placed any control on the yen since 2004.^[39] The reserves reached US$1.06 trillion in October 2009.^[40]

South Korea

South Korea ranked sixth in foreign exchange reserves, which reached US$270.9 billion in November 2009.^[40] It accounted for 6.4 percent of the total ASEAN Plus Three reserves and 8 percent of the combined gross domestic product of the participating countries in 2009.^[41] The Korea Times wrote in an editorial that the country should act as a mediator between China and Japan, whose equal contributions meant that both "should refrain from racing for regional hegemony in the cooperative grouping".^[42]

Further Reading

• Grimes, William W., The Asian Monetary Fund Reborn? Implications of Chiang Mai Initiative Multilateralization (Asia Policy, January 2011)

See also

• Comprehensive Economic Partnership for East Asia
• Asian Monetary Unit

Notes

1. ^ ^{a b} "Focusing the Fund on Financial Stability". Far Eastern Economic Review: pp. 48–50. 14 June 2001. Archived from the original on 17 December 2001. http://web.archive.org/web/20011217015219/http://www.feer.com/articles/2001/0106_14/p048money.html. Retrieved 14 March 2010. 
2. ^ "ASEAN, China, Japan, S.Korea Agree on Currency Swap". People's Daily. 7 May 2000. http://english.people.com.cn/english/200005/07/eng20000507_40281.html. Retrieved 3 January 2010. 
3. ^ Crampton, Thomas (8 May 2000). "East Asia Unites to Fight Speculators". The New York Times. http://www.nytimes.com/2000/05/08/news/08iht-adb.2.t.html. Retrieved 3 January 2010. ^{[dead link]}
4. ^ "Asians will defend their money". Manila Standard. Associated Press: pp. 1–2. 8 May 2000. "Countries would lend dollars to each other to help defend the value of their currencies during speculative attacks or other currency problems. The loans would be paid back in local currencies at a fixed rate. It would complement existing international institutions, the statement said, acknowledging likely opposition from the United States if a deal eventually led to an attempt to replace the Washington based International Monetary Fund. Malaysia, which has long urged fellow Asian nations to rely on each other for help, rather than on the West, refused the IMF's treatment and suffered less in the crisis than others." 
5. ^ Mahboob-ul Alam, Chaklader (12 November 2009). "The Chiang Mai currency initiative". The Daily Star. http://www.thedailystar.net/newDesign/news-details.php?nid=113654. Retrieved 2 January 2010. 
6. ^ "Silly scheming in Chiang Mai". Asia Times Online. 9 May 2000. http://www.atimes.com/editor/BE09Ba01.html. Retrieved 3 January 2010. 
7. ^ "IMF revisits the scene of the crime". Asia Times Online. 3 June 2000. http://www.atimes.com/editor/BF03Ba01.html. Retrieved 3 January 2010. 
8. ^ "The Agreement on the Swap Arrangement under the Chiang Mai Initiative (as of October 16, 2009)" (PDF). Bank of Japan. 16 October 2009. http://www.boj.or.jp/en/type/release/adhoc09/data/un0910a.pdf. Retrieved 4 January 2010. 
9. ^ "Action Plan to Restore Economic and Financial Stability of the Asian Region". ASEAN. 22 February 2009. http://www.asean.org/22158.htm. Retrieved 2 January 2010. 
10. ^ "Asia set to boost emergency fund". BBC News. 22 February 2009. http://news.bbc.co.uk/2/hi/business/7904414.stm. Retrieved 2 January 2010. 
11. ^ "ASEAN countries agree on individual contributions to regional reserve pool". Xinhua News Agency. 9 April 2009. http://news.xinhuanet.com/english/2009-04/09/content_11159564.htm. Retrieved 3 January 2010. 
12. ^ Romero, Alexis Douglas B. (14 April 2009). "Planned regional fund faces delay". BusinessWorld 22 (178). http://www.bworldonline.com/BW041409/content.php?id=002. Retrieved 3 January 2010. ^{[dead link]}
13. ^ Wijaya, Agoeng (14 April 2009). "Talks on ASEAN+3 Crisis Fund Continues Despite Bangkok Riots". Tempo. http://www.tempointeractive.com/hg/nasional/2009/04/14/brk,20090414-170246,uk.html. Retrieved 3 January 2010. 
14. ^ "ASEAN, China, Japan, SKorea finalise crisis pact". Agence France-Presse. 3 May 2009. http://www.google.com/hostednews/afp/article/ALeqM5gjvs9kCsNuS_RsMZf3wIME54FHqA. Retrieved 2 January 2010. 
15. ^ "Hong Kong SAR joins ASEAN+3 foreign currency reserve pool". Xinhua News Agency. China Central Television. 4 May 2009. http://www.cctv.com/english/20090504/101398.shtml. Retrieved 3 January 2010. 
16. ^ "Asean Members Sign Chiang Mai Initiative Multilateralization Agreement". Bernama. 28 December 2009. http://www.bernama.com.my/bernama/v3/news_lite.php?id=464795. Retrieved 2 January 2010. 
17. ^ "Chiang Mai Initiative multilateral accord signed". The Star. 29 December 2009. http://biz.thestar.com.my/news/story.asp?file=/2009/12/29/business/5376484&sec=business. Retrieved 2 January 2010. 
18. ^ ^{a b} "Date set for currency swap". The Japan Times. 30 December 2009. http://search.japantimes.co.jp/cgi-bin/nb20091230a2.html. Retrieved 1 January 2010. 
19. ^ Yoon, Ja-young (28 December 2009). "Asian Monetary Fund to Debut in March". The Korea Times. http://www.koreatimes.co.kr/www/news/biz/2009/12/123_58046.html. Retrieved 2 January 2010. 
20. ^ "ASEAN+3's $120b swap deal put in place". The Jakarta Post. 29 December 2009. http://www.thejakartapost.com/news/2009/12/29/asean3%E2%80%99s-120b-swap-deal-put-place.html. Retrieved 2 January 2010. 
21. ^ Ito, Aki; Yong, David (28 December 2009). "ASEAN, Japan, China Form $120 Billion Reserve Pool". Bloomberg. http://www.bloomberg.com/apps/news?pid=20601068&sid=ayyiso8ssyb8. Retrieved 5 January 2010. 
22. ^ Rajan, Ramkishen S. (14 December 2009). "Come closer, all Asians". The Financial Express. http://www.financialexpress.com/news/Come-closer--all-Asians/553604. Retrieved 4 January 2010. 
23. ^ "The Establishment of the Chiang Mai Initiative Multilateralization" (PDF). Ministry of Finance (Japan). 28 December 2009. p. 2. http://www.mof.go.jp/english/if/091228press_release.pdf. Retrieved 4 January 2010. 
24. ^ Berthelsen, John (14 January 2008). "Asia Ponders Its Astounding Foreign Exchange Reserves". Asia Sentinel. http://www.asiasentinel.com/index.php?option=com_content&task=view&id=985&Itemid=32. Retrieved 5 January 2010. 
25. ^ "Cambodia reserves top $3.5b". The Straits Times. Agence France-Presse. 8 October 2009. http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_439828.html. Retrieved 5 January 2010. 
26. ^ "Monetary Indicators". Bank Indonesia. 30 November 2009. http://www.bi.go.id/web/en/Moneter/Indikator+Moneter/. Retrieved 5 January 2010. 
27. ^ "Lao Monetary Statistics Q2 2009" (PDF). Bank of the Lao People's Democratic Republic. June 2009. http://www.bol.gov.la/together_use/quarterly2-2009.pdf. Retrieved 5 January 2010. 
28. ^ "International Reserves and Foreign Currency Liquidity". Bank Negara Malaysia. 30 November 2009. http://www.bnm.gov.my/index.php?ch=12&pg=293. Retrieved 5 January 2010. 
29. ^ Macan-Markar, Marwaan (30 November 2009). "Burma: Nobel Laureate Stiglitz to Advise Junta on Poverty". Inter Press Service. http://www.ipsnews.net/news.asp?idnews=49473. Retrieved 5 January 2010. 
30. ^ "International Reserves". Central Bank of the Philippines. 17 December 2009. http://www.bsp.gov.ph/statistics/spei_new/tab16.htm. Retrieved 5 January 2010. 
31. ^ "Official Foreign Reserves". Monetary Authority of Singapore. 7 December 2009. http://www.mas.gov.sg/data_room/reserves_statistics/Official_Foreign_Reserves.html. Retrieved 5 January 2010. 
32. ^ "Reserve Money and International Reserve Report" (PDF). Bank of Thailand. 30 December 2009. http://www.bot.or.th/Thai/EconomicConditions/Thai/Documents/E301209.pdf. Retrieved 5 January 2010. 
33. ^ ^{a b} Thomas, Beth; Nguyen, Dieu Tu Uyen (19 November 2009). "Vietnam to Use First Bond Sale in 4 Years for Energy". Bloomberg. http://www.bloomberg.com/apps/news?pid=20601080&sid=apc.VbgrT8C8. Retrieved 5 January 2010. 
34. ^ Folkmanis, Jason (4 November 2009). "Vietnam Dong in 'Vicious Circle', Morgan Stanley Says". Bloomberg. http://www.bloomberg.com/apps/news?pid=20601087&sid=amLvuWmGk.qk&pos=7. Retrieved 5 January 2010. 
35. ^ Schifferes, Steve (2 November 2006). "China's trillion dollar surplus". BBC News. http://news.bbc.co.uk/2/hi/business/6106280.stm. Retrieved 4 January 2010. 
36. ^ Hamlin, Kevin; Li, Yanping; Worrachate, Anchalee; Kennedy, Simon; Hendry, Sandy; Carrigan, Justin (16 July 2009). "China $2 Trillion Reserves Keep U.S. Stimulus Afloat". Bloomberg. http://www.bloomberg.com/apps/news?pid=20601087&sid=a6S8.q2ojxn0. Retrieved 4 January 2010. 
37. ^ Wang, Aileen; Rabinovitch, Simon (4 January 2010). "China must invest forex in resources -c.bank official". Thomson Reuters. http://uk.reuters.com/article/idUKTOE60303E20100104. Retrieved 4 January 2010. 
38. ^ McCullough, Keith R. (28 December 2009). "China Charts Its Own Path". Forbes. http://www.forbes.com/2009/12/28/china-dollar-stocks-markets-economy-2010.html. Retrieved 2 January 2010. 
39. ^ Chen, Shu-Ching Jean (7 March 2008). "$1 Trillion In Forex Reserves Less Than It Seems For Japan". Forbes. http://www.forbes.com/2008/03/07/japan-forex-dollar-markets-currency-cx_jc_0307markets1.html. Retrieved 4 January 2010. 
40. ^ ^{a b} Lee, Hyo-sik (2 December 2009). "Currency Reserves Hit Record High of $271 Bil.". The Korea Times. http://koreatimes.co.kr/www/news/biz/2009/12/123_56542.html. Retrieved 5 January 2010. 
41. ^ "Asian Currency Swap Fund to Guard Against Future Crises". The Chosun Ilbo. 29 December 2009. http://english.chosun.com/site/data/html_dir/2009/12/29/2009122900287.html. Retrieved 4 January 2010. 
42. ^ "Asian Currency Union". The Korea Times. 29 December 2009. http://www.koreatimes.co.kr/www/news/opinon/2009/12/137_58134.html. Retrieved 2 January 2010. 

References

• Asami, Tadahiro (1 March 2005). "Chiang Mai Initiative as the Foundation of Financial Stability in East Asia" (PDF). Institute for International Monetary Affairs. http://www.asean.org/17905.pdf. Retrieved 4 January 2010. 
• Henning, C. Randall (2002) (PDF). East Asian Financial Cooperation. Washington, D.C.: Peterson Institute for International Economics. ISBN 978-0-88132-338-2. http://bookstore.piie.com/book-store/345.html. 
• Park, Yung Chul; Wang, Yunjong (14 January 2005). "The Chiang Mai Initiative and Beyond". The World Economy 28 (1): 91–101. doi:10.1111/j.1467-9701.2005.00618.x. 
• Rana, Pradumna B. (February 2002) (PDF). Monetary and Financial Cooperation in East Asia: The Chiang Mai Initiative and Beyond. Economics Research Department Working Paper Series. Asian Development Bank. ISSN 1655-5252. http://www.adb.org/Documents/ERD/Working_Papers/wp006.pdf. Retrieved 23 January 2010. 

External links

• Regional Financial Cooperation among ASEAN+3