Regional Monetary Cooperation in East Asia

Should the United States Be Concerned?

After a decade of negotiations revolving around regional monetary cooperation, the Association of Southeast Asian Nations (ASEAN) plus China, Japan, and South Korea (ASEAN + 3) finally reached agreement to establish a regional foreign reserve pool in February 2009. The formation of the Asian foreign reserve pool has, however, not been greeted with universal enthusiasm. Although ostensibly a regional financial matter, its wider economic and geopolitical implications are still being debated. Three major concerns have been raised—first, that an Asian foreign reserve pool will undermine the International Monetary Fund’s role as lender of last resort during a financial crisis. Second, there are concerns, particularly among some in the United States, that as Asian regional monetary cooperation moves forward, it will negatively impact U.S. interests and diminish U.S. influence in East Asia, a region of increasing strategic importance to Washington in view of Beijing’s rise. Third, and of utmost concern to many, is China’s role in this new regional monetary cooperation mechanism and how it could impact the region’s delicate geopolitical balance. This report examines the validity of these concerns, in particular China’s motivations as the main backer of the Chiang Mai Initiative Multilateralization Agreement, to ascertain what the implications are for the United States down the road.

Melissa Murphy and Wen Jin Yuan