"CEAC Commentary" introduces news analyses andopinions in Japan on the concept of an East AsianCommunity, but they do not represent the views ofCEAC as an institution.

March 5, 2007

On the possibility of Asian Monetary FundBy MURAKAMI Masayasu
With the Asian currency crisis of ten years ago as a turning point, a sense of solidarity has been
formed in Asia, thereby promoting concrete measures of regional cooperation, especially in thearea of finance. One of the ideas the Japanese government then proposed was the creation of theAsian Monetary Fund (AMF). This plan was intended to establish a new scheme for mutual
support by pooling funds and providing liquidity for a member country in crisis. As Dr.
SAKAKIBARA Eisuke, then the Japan Vice Minister for International Finance, looks back invarious episodes of his book, this plan hit the setback of strong opposition from the U.S. andChina, and in fact it was also too hasty a plan at that time. Ever since, while the AMF proposal
has disappeared from the front stage, the Chiang Mai Initiative (CMI) has been advanced instead,which is creating a network of bilateral currency swap arrangements.
The CMI has so far accomplished progress in various areas, and reached a total amount of 79
billion USD as of the end of last year. As it is gradually becoming so large-scale, further
progress is inevitably needed in order to achieve an efficient and effective function.
For example, the argument can be made that the current 16 bilateral swap arrangements should
be unified so that the CMI could operate smoothly. Further strengthening of surveillance is alsoneeded for its well-managed operation. Then, once the framework of surveillance is established,reform of the explicit link to the IMF of 90% of CMI's liquidity provision should also be on theagenda. Furthermore, if we try to give substance to CMI swap arrangements in order to obtainmarket confidence, we cannot deny the necessity of pooling foreign reserves any more. If theCMI makes progress in such a direction, it will be exactly the same outcome as the realization ofthe AMF.
It is true that the CMI will not easily progress to the extent envisaged by the AMF, and various
opinions about the concrete design of the AMF will occur one after another when we try toestablish an organization for regional surveillance and for the management of pooled foreignreserves. However, it should be emphasized that the framework which started as the CMI has thepotential, as the inevitable conclusion of the strengthening of its functions, of evolving into theAMF in substance, which could not have been accomplished at the beginning.
This may offer us important suggestions about how we should make progress in regional1cooperation. Regardless of whether it should be called a "community," we can frequently find anoverarching idea of regional integration and cooperation. Although we should not deny its
necessity, we should not talk about unrealizable empty dreams either. We need to discern what
can be started concretely. In addition, cooperation should be a path-breaking measure so that it
can lead to the realization of the grander, overarching idea of community. In conclusion, theCMI has such a potential for path-breaking, and in this way, is currently paving the way towards
the AMF.

(This is the English translation of an article written by MURAKAMI Masayasu, Directorof Research of the Japan Forum on International Relations, Inc., which was originallyappeared in "CEAC Policy BBS" on February 12, 2007)2