The Future of International Monetary System for Asia
Annual Seminar on Macroeconomic and Financial Policy Issues
Jointly organized by Hitotsubashi University and the IMF Regional Office for Asia and the Pacific
March 8-9, 2017
The Asian Financial Crisis of the late 1990s highlighted the risks of sudden stops in capital flows and lack of access to the dollar. This severely limited its ability to import and to fulfil its debt obligations, causing a balance-of-payments crisis. Emerging market countries in Asia are not unique in that they suffer from the ‘original sin’ of not being able to borrow in domestic currencies, but Asia’s reliance on a currency from outside the region, the issuer of which may be less willing to act as the lender of last resort, potentially raises vulnerabilities.
In response, Asian countries, individually and collectively, sought to increase their security against liquidity shortages through building up of dollar reserves and creating a mechanism to provide dollar liquidity among each other in times of need including through bilateral SWAP agreements and the Chiang Mai Initiative.
The global financial crisis (GFC) highlighted a further dimension to the risks of relying on the dollar, as the financial crisis in the U.S. constrained U.S. banks to supply cross-border credit, resulting in a sudden drying up of international dollar liquidity. Unlike in the previous crisis episodes, the liquidity shortage stemmed from the supply side, and affected international dollar users irrespective of their creditworthiness. While the Federal Reserve’s swap operations with (mainly) advanced country central banks eased the problem for these countries, the operation did not extend to Asian emerging market countries.
To address these issues, some have proposed reducing the reliance on the dollar. Over the last three decades, Japan has made intermittent attempts to ‘internationalize’ the yen, with limited success. More recently, China is actively seeking to promote the international use of RMB, possibly positioning itself as an alternative to the dollar as the predominant international currency for Asia. The importance of RMB in international transactions has been increasing, and has led to the recent inclusion of the RMB in the SDR basket. Now, the yen and the RMB are two of the five constituent currencies of the SDR, with a combined weight of over 19 per cent. China has also been making bilateral efforts to increase the use of RMB through the creation of swap lines and encouraging the development of RMB markets in key financial centers.
This seminar will attempt to engage regional policymakers in a conversation about the future form of the international monetary system for Asia, focusing particularly on the issue of access to international currency, including in particular the possible expansion of the role of regional currencies. Questions that may be addressed are:
- Would recent policies in the region lead to a less vulnerable system for Asia? Will the wider use of regional currencies reduce risks, and if not, what needs to be done?
- Will the regional insurance arrangements that have been constructed over the last two decades lead to reduced risks of financial crises? Given the role of the financial system in supplying international liquidity, does regional cooperation in financial regulation and supervision need to be expanded further?
- How should regional initiatives mesh with or be complementary to global efforts?
- What would be the future role of SDR, and could it be used more widely?
- What would be the IMF’s roles in ensuring global monetary stability?
|Wednesday, March 8|
Professor Akira Ariyoshi, Asian Public Policy Program (APPP), Hitotsubashi University
Mr. Mitsuhiro Furusawa, Deputy Managing Director, International Monetary Fund (IMF)
Session 1: International Money and International Monetary System
The session sets the background for discussion on the international monetary system and the state of current international debate on the direction of reform of the international monetary system. It will also look at the possible role that the SDR may play as an international currency.
Chair: Mr. Giovanni Ganelli, Deputy Head of Office, Regional Office for Asia and the Pacific (OAP), IMF
Presenter: Professor Akira Ariyoshi, Hitotsubashi University
Presenter: Mr. Alfred Kammer, Deputy Director, Strategic, Policy and Review Department, IMF
Session 2: Internationalization of regional currencies
This session will discuss the possibilities and the potential merits and costs of moving away from the reliance of the dollar, by reviewing the state of the current use of currencies in international transactions, and examining past and current attempts by regional authorities to expand the use of their currencies in international transactions. It will discuss whether the development of regional key currencies beneficial for Asia, and how the internationalization of regional currencies may affect the management of Asian countries’ foreign exchange policies.
Chair: Professor Akira Ariyoshi, APPP, Hitotsubashi University
Session 2: Internationalization of regional currencies (Continued)
Session 3: Regional Cooperative Arrangements to Enhance the International Monetary System
This session will discuss the progress so far in enhancing regional cooperation, and the possible need to expand cooperation beyond reserve pooling to regional exchange policy coordination and maintenance of financial stability. What would be the role of international organization, both regional and global, in this context?
Chair: Mr. Kenichiro Kashiwase, Senior Economist, OAP, IMF
End of first day
Mr. Masatsugu Asakawa, Vice Minister of Finance for International Affairs, the Japanese Ministry of Finance
|Thursday, March 9|
The wrap-up panel discussion will draw on previous day’s discussions, and could address the following topics:
Moderator: Professor Akira Ariyoshi, Hitotsubashi University (Presentation)
Mr. Chikahisa Sumi, Director, OAP, IMF