Abstract
This chapter discusses mechanisms to prevent and resolve foreign exchange crises in East Asia. Policies and mechanisms at the country level as well as regional and global levels are discussed. Policies at the level of a particular country to prevent foreign exchange crises include the management of short-term foreign currency liabilities, the adequacy of reserves, and managing episodes of rapid short-term capital inflows. The author discusses the development of regional mechanisms for crisis prevention and resolution in conjunction with the global mechanisms, including the Chiang Mai Initiative (CMI) and the Chiang Mai Initiative Multilateralization (CMIM). The author then suggests how the CMIM can evolve into an integrated crisis prevention and resolution mechanism for East Asia.
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- 1.
For more details on the evolution of the crisis, its resolution, and lessons see Sussangkarn and Vichyanond (2007).
- 2.
For discussions of the IMF program for Thailand, see Sussangkarn (2002).
- 3.
Although only 20 % of this could be utilized without linking to an IMF supervised program (see discussion of the Chiang Mai Initiative below. Japan and Indonesia also supplemented this in July 2009 with a rupiah–yen swap agreement amounting to ¥1.5 trillion (about $19 billion).
- 4.
And, of course, the rapid capital outflows during the global financial crisis.
- 5.
However, in recent years, many East Asian economies have also been preventing their currencies from appreciating even though they have large current account surpluses and net foreign direct investment inflows.
- 6.
See more discussions on the Thai case below.
- 7.
From January 2012, the Thai government shifted the whole interest burden of the clean up bonds to the Bank of Thailand and diverted most of the bank contributions to the Deposit Protection Agency to the Bank of Thailand to help meet the interest burden. The change will impact the balance sheet of the Bank of Thailand for many years to come as well as reduce credibility of the Deposit Protection Agency.
- 8.
Kawai and Lamberte (2010) is an excellent example of the kind of studies that are needed.
- 9.
For more details on the development of the CMI and CMIM, see Sussangkarn (2011a).
- 10.
The ASEAN Swap Arrangement (ASA) was established in 1977 by the central banks of the original ASEAN member countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand) to provide short-term (1–6 months) liquidity assistance to members that might experience a temporary international liquidity problem. The initial size was $100 million. The expanded ASEAN Swap Arrangement increased the size to $1 billion, which was later increased further to $2 billion and the membership was expanded to include all 10 ASEAN member countries.
- 11.
The Republic of Korea, for example, could have accessed $16.5 billion through its won–dollar swaps under the CMI if it was willing to go into an IMF supervised program.
- 12.
For details on FLAR see https://www.flar.net/ingles/contenido/default.aspx.
- 13.
For more detailed discussion see Sussangkarn (2011b).
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Sussangkarn, C. (2014). Prevention and Resolution of Foreign Exchange Crises in East Asia. In: Kawai, M., Lamberte, M., Morgan, P. (eds) Reform of the International Monetary System. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55034-1_8
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DOI: https://doi.org/10.1007/978-4-431-55034-1_8
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