The global crisis is shifting the international finance landscape. Instead of looking to the IMF there is more action on a regional basis. The ASEAN + 3 countries have formed a $120 billion pool of foreign reserves to be used to help stabilize currencies. This is an extension of Chiang Mai initiative (CMI) and will provide a large pool of funds to stop any contagion effects like what was seen during the Asian crisis of 1997-1998. Most of the funds will come from China and Japan without funds from the US. This will mean that foreign reserves from each country will not have to be exhausted in order to stabilize an exchange rate from excessive volatility.
China and Japan have the resources and are now taking a lead which was not seen a decade ago. It is in the regional interests to stabilize exchange rates so there is not excessive capital outflows or a threat of competitive devaluation in order to gain a trading advantage within the region.
Along with the reserve support, there has been increased talk about about freer trade and an end to some protectionist policy. The ten member ASEAN signed a free trade agreement with Australia and New Zealand. Given the impact of exports on many of these economies, they have to take the lead to limit protectionism around the globe.
China and Japan have the resources and are now taking a lead which was not seen a decade ago. It is in the regional interests to stabilize exchange rates so there is not excessive capital outflows or a threat of competitive devaluation in order to gain a trading advantage within the region.
Along with the reserve support, there has been increased talk about about freer trade and an end to some protectionist policy. The ten member ASEAN signed a free trade agreement with Australia and New Zealand. Given the impact of exports on many of these economies, they have to take the lead to limit protectionism around the globe.
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