Remaking the architecture: The emerging powers, self-insuring and regional insulation

International Affairs

Volumn 86, Issue 3, 2010, Pages 693-715

  Chin, Gregory T ^a  

^a YORK UNIVERSITY   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 77954111758     PISSN: 00205850     EISSN: 14682346     Source Type: Journal    
DOI: 10.1111/j.1468-2346.2010.00906.x     Document Type: Article

References (72)

1. Chris Giles and Alan Beattie, 'China reprimanded by G20 leaders', Financial Times, 30 March 2010, http://www.ft.com/cms/s/0/a1e38f96-3c23-11df-b40c-00144feabdc0,s01=1.html, accessed 22 March 2010.
2. See e.g. Sanjay Suri, 'G20: moving up BRIC by BRIC', IPS News, 4 Sept. 2009, http://ipsnews.net/news.asp?idnews=48339, accessed 22 March 2010; Ngaire Woods, 'Global governance after the financial crisis: a new multilateralism or the last gasp of the Great Powers?', Global Policy 1: 1, 2010, pp. 51-63.
3. Woods, 'Global governance after the financial crisis'.
4. Woods, 'Global governance after the financial crisis'. For a similar prediction from the angle of international monetary relations, see the chapters by Benjamin Cohen ('Towards a leaderless world') and David Calleo ('Twenty-first century geopolitics and the erosion of the dollar order') in Eric Helleiner and Jonathan Kirshner, eds, The future of the dollar (Ithaca, NY: Cornell University Press, 2009), pp. 142-64, 164-90.
5. See e.g. statements from the IMF and Asian Development Bank, as well as prominent think-tank analysis: John Lipsky, 'Asia, the financial crisis, and global economic governance', speech of the deputy managing director of the IMF to the Federal Reserve Bank of San Francisco Conference, 29 Oct. 2009, http://www.imf.org/external/np/speeches/2009/102009.htm, accessed 12 April 2010; Asian Development Bank, 'Global financial crisis and proposed ADB response', Jan. 2009, http://www.adb.org/Documents/Others/in17-09.pdf, accessed 12 April 2010;
6. C. Fred Bergsten, 'A blueprint for global leadership in the twenty-first century', Peterson Institute for International Economics, 4 Nov. 2009, http://www.iie.com/publications/papers/paper.cfm?ResearchID=1323, accessed 12 April 2010; Peter Drysdale, 'East Asia and the global financial crisis', East Asian Forum, 25 Dec. 2008, http://www.eastasiaforum.org/2008/12/25/east-asia-strategic-interests-in-fixing-the-global-financial-crisis/, accessed 12 April 2010.
7. Benjamin J. Cohen, 'The future of reserve currencies', Finance and Development 46: 3, Sept. 2009, p. 28.
8. Ronald U. Mendoza, 'International reserve holding in the developing world: self-insurance in a crisis prone era', Emerging Markets Review 5: 1, 2004, pp.61-82; Gregory Chin, 'China and the BRICs: state insulation and continuing rise', in John Kirton, Chiara Oldani and Paolo Savano, eds, Global financial crises: national economic responses and geopolitical implications (Aldershot: Ashgate, forthcoming 2010).
9. Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund, 4 Oct. 2009, http://www.imf.org/external/np/cm/2009/100409.htm, accessed 5 April 2010.
10. Communiqué of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund, 4 Oct. 2009 (emphasis added).
11. Woods, 'Global governance after the financial crisis', p. 56.
12. Yung Chul Park and Charles Wyplosz, 'Emerging economies in East Asia: are they safe from future financial crises?', IDS Bulletin 38: 4, July 2007, pp. 7-28; Oliver Jeanne and Romain Ranciere, 'The optimal level of international reserves for emerging market countries: formulas and applications', IMF working paper WP/06/229, 2006; Joshua Aizenman and Jaewoo Lee, 'International reserves: precautionary vs. mercantilist views, theory and evidence', IMF working paper WP/05/198, Oct. 2005.
13. Mendoza, 'International reserve holding', pp. 65, 66.
14. Charles Wyplosz, 'The foreign exchange reserves build up: business as usual?', paper prepared for the workshop on 'Debt, finance and emerging issues in financial integration', United Nations Department of Economic and Social Affairs and Commonwealth Secretariat, London, 6-7 March 2007, http://www.un.org/esa/ffd/events/2007debtworkshop/Wyploz.pdf, accessed 5 April 2010.
15. Ariel Buira, 'Allocating special drawing rights to increase international financial stability', in Inge Kaul, Katell Le Gouvlen and Mirjam Schnupf, eds, Global public goods financing: new tools for new challenges (New York: United Nations Development Programme, Office of Development Studies, 2002), pp. 75-6; Martin Feldstein, 'Self-protection for emerging market economies', NBER working paper 6907, Jan. 1999.
16. 'Lula says Brazil not at risk despite global financial crisis', Xinhua, 6 Oct. 2008, http://news.xinhuanet.com/english/2008-10/06/content_10154264.htm, accessed 21 March 2010.
17. Richard Higgott, 'The Asian financial crisis: a study in the politics of resentment', New Political Economy 3: 3, Nov. 1998, pp. 333-56; Paul Bowles, 'Asia's post-crisis regionalism: bringing the state back in, keeping the (United) States out', Review of International Political Economy 9: 2, May 2002, pp. 244-70; Joseph Stiglitz, Globalization and its discontents (New York: Norton, 2002).
18. Developing countries were urged to adopt financial codes and standards to enhance transparency and access for market actors, but few corresponding obligations for disclosure by private financial institutions were called for, even on highly leveraged products such as hedge funds. See Stephany Griffith-Jones, 'International financial stability and market efficiency as a global public good', in Inge Kaul, Pedro Conceicao, Katell le Goulven and Ronald Mendoza, eds, Providing global public goods: managing globalization (New York: Oxford University Press, 2003), p. 439.
19. Jose Antonio Ocampo, 'The instability and inequities of the global reserve system', International Journal of Political Economy 36: 4, Winter 2007-2008, pp.71-86.
20. Gregory Chin and Eric Helleiner, 'China as a creditor: rising financial power?', Journal of International Affairs 61: 2, Fall 2008, pp. 87-102.
21. Ocampo, 'The instability and inequities of the global reserve system'; Griffith-Jones, 'International financial stability'.
22. The experience of previous attempts to manage international financial crisis, and the previous effort of creating a 'new international financial architecture' just a decade ago, suggest that it is unrealistic to assume that regulators could prevent international financial crises from ever breaking out again in the future. For example, if part of the cause of the recent global crisis was the 'skill' of professionals in the financial industry in evading regulation, experience has shown that it is difficult for the regulators to stay one step ahead of the evaders. Regulators tend only to find out about regulatory evasion when a crisis breaks out, at which point they are functioning in a reactive mode. I thank Alistair Newton for this point.
23. Ariel Buira, 'The governance of the International Monetary Fund', in Kaul et al., Providing global public goods, pp. 225-44.
24. See Anthony Payne's article in this special issue.
25. Yu Yongding, 'Ten years after the Asian financial crisis: the fragility and strength of China's financial system', IDS Bulletin 38: 4, July 2007, p. 32.
26. Michael Dooley, David Folkerts-Landau and Peter Garber, 'Savings gluts and interest rates: the missing link to Europe', NBER working paper 11520, Aug. 2005; Jeffrey Frankel, 'On the renminbi: the choice between adjustment under a fixed exchange rate and adjustment under a flexible rate', NBER working paper 11274, Apr. 2005.
27. The differences in this exchange rate debate ultimately come down to fundamentally differing views of the relative costs and benefits of differing exchange rate regimes, i.e. flexible, fixed and managed floating. China sees a managed floating exchange rate as providing the optimal balance of stability and responsiveness to market conditions in times of world economic stability, and reinstated a fixed exchange rate during the global crisis. Beijing does not support the paradigm of flexible exchange rates coupled with one nation's currency acting as the major global currency. However, it has become more willing of late to consider gradually expanding the band within which the renminbi can float - in other words, gradually allowing for greater flexibility in the exchange rate.
28. Li Yang, 'China's foreign exchange reserve is enough', Shanghai Securities News (Chinese), 17 March 2006.
29. China would be classified as an extreme case of self-insuring in that it has never accepted any IMF loans, and has consciously avoided doing so because of IMF conditionality.
30. Author's discussions with Chinese think-tank and academic specialists. See also Fan Li, 'Macro-adjustment mechanism of national reserves in-kind' (Chinese), CASS policy paper (Chinese Academy of Social Sciences, Institute of Finance and Trade Economics), Dec. 2004.
31. See Fan, 'Macro-adjustment mechanism of national reserves in-kind'.
32. Author's discussions with senior Chinese party and government officials, Beijing, 2004.
33. 'Blessing or burden: $1 trillion US dollar reserves spark debate in China', People's Daily (online), 15 Nov. 2006, http://english.peopledaily.com.cn/200611/15/eng20061115_321713.html, accessed 5 April 2010 (emphasis added).
34. The Chinese and English versions of the speech can be accessed at the official website of the People's Bank of China: http://www.pbc.gov.cn/detail.asp?col=4200&ID=279, accessed 3 April 2010 and http://www.pbc.gov.cn/english/detail.asp?col=6500&ID=178, accessed 3 April 2010.
35. Gregory Chin and Wang Yong, 'Debating the international currency system: what's in a speech?', China Security 6: 1, 2010. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies.
36. See IMF, 'Special Drawing Rights (SDRs): factsheet', International Monetary Fund, 31 Jan. 2010, http://www.imf.org/external/np/exr/facts/sdr.htm, accessed 5 April 2010.
37. The content of Hu Jintao's speech is cited in 'China to further assist developing countries', China Daily, 24 Sept. 2009, http://www.chinadaily.com.cn/china/2009-09/24/content_8730895.htm, accessed 2 April 2010.
38. Hyoung-kyu Chey, 'The changing political dynamics of East Asian financial cooperation: the Chiang Mai Initiative', Asian Survey 49: 3, May-June 2009, p. 452. Some analysts emphasize that the designation of CMIM as a 'complementary liquidity funding mechanism within the framework of the IMF', and the fact that the remaining 80% of CMIM funds require IMF review and sign-off for release, illustrate the serious limits of this supposed 'regional' initiative. See Saori Katada, 'Politics that constrains: the logic of fragmented regionalism', EAI Fellows Program working paper 21, Oct. 2009, p. 9.
39. For a similar assessment, see Zhang Ming, 'China's new international financial strategy amid the global financial crisis', China and World Economy 17: 5, 2009, p. 29.
40. The IDB did provide debt relief lending to Haiti in 2009.
41. What is now FLAR was originally created in 1978, as the Andean Reserve Fund, to serve the countries of the Andean Community. The fund has acted largely as a credit cooperative that uses different credit facilities to lend to members' central banks (in proportion to their capital contributions). FLAR has three main objectives: to provide balance of payments financial support for its member countries; to improve the terms for its members' reserves investments; and to encourage macroeconomic coordination between its members in their monetary and financial policies. See Jose Luis Machinea and Daniel Titelman, 'Less volatile growth? The role of regional financial institutions', CEPAL Review (UN Economic Commission for Latin America and the Caribbean [ECLAC]), April 2007, p. 16; Daniel Titelman, 'La cooperación financiera en el ǎmbito subregional: las experiencias de América Latina y el Caribe', in Jose Antonio Ocampo, ed., Cooperación financiera regional [Regional financial cooperation], Libros de la Cepal 91 (Santiago: ECLAC Publications, 2006).
42. Machinea and Titelman, 'Less volatile growth?', p. 16. Proponents of Latin American financial regionalism further note that, over the past decade, loans from FLAR's regional reserve pool have been much larger than loans from the IMF, as many countries in the region have avoided IMF loans. According to one estimate, between 1978 and 2003 FLAR provided loans amounting to nearly 60% of the total amount of loans provided by the Fund (US$4.9 billion from FLAR and US$8.1 billion from the IMF), the great majority consisting of credits for balance of payments support and liquidity. See Titelman, 'La cooperación financiera en el ǎmbito subregional'.
43. The CCR has functioned since 1966, when it was created under the Associación Latinoamericana de Integración (ALADI, or Latin American Integration Association). Of the 13 members of the association, 12 are subscribers to the agreement: Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela (Cuba is the exception). The CCR played a significant role in helping states in the region deal with payments crises and short-term liquidity crises after its creation and during the 1970s. See Jose Rocha, 'Brasil e Argentina vão elevar linha de crédito do CCR para US$ 1,5 billion', Valor Econǒmico, 24 Apr. 2009.
44. Jose Rocha, 'Brasil vai propor acesso de Cuba a mecanismo comercial da Aladi', Valor Econǒmico, 16 Apr. 2009.
45. See Vince McElhinny, 'Global crisis is good news for IFIs in Latin America', Bank Information Centre, 9 Jan. 2009, http://www.bicusa.org/EN/Article.11015.aspx, accessed 2 April 2010.
46. Business Monitor International (United Kingdom), Latin American monitor: Brazil, Sept. 2009; Andre Soliani and Iuri Dantas, 'Brazil freezes 37.2 billion reais of 2009 budget', Bloomberg, 27 Jan. 2009, http://www.bloomberg.com/apps/news?pid=20601086&ref=latin_America&sid=aBEtHVyj519, accessed 18 April 2010.
47. To accommodate its increased fiscal commitments, the Brazilian government reduced its primary fiscal surplus target from 3.8% to 2.5% of GDP, with a cost of worsening deficit and debt positions in the short term.
48. UN ECLAC, Economic survey of Latin America and the Caribbean, 2008-2009 (Santiago, Chile, July 2009).
49. Press release of the board of governors of the Federal Reserve System, 29 Oct. 2008, http://www.federalreserve.gov/newsevents/press/monetary/20081029b.htm, accessed 25 March 2010. Other countries that signed bilateral currency swaps with the US during the global crisis included Mexico, Singapore and South Korea.
50. Argentina could use the swap to pay for Chinese imports in renminbi, and China would accept pesos for Argentine imports. An Argentinian central bank official said the deal's main goal was to restore confidence in the Argentinian government's ability to manage the value of the peso. See Taos Turner, 'China, Argentina agree to currency swap', Wall Street Journal, 31 March 2009, http://online.wsj.com/article/SB123845815223971685.html, accessed 25 March 2010.
51. Japan also arranged swaps with India in 2007 and in 2005 negotiated a swap with Vietnam valued at US$1 billion.
52. Xinhua News Agency, 12 Nov. 2008. The domestic stimulus package focuses on infrastructure projects, affordable housing, rural infrastructure, water, electricity, transport, the environment, technological innovation and rebuilding areas hit by natural disasters, especially the areas affected the May 2008 earthquake. In addition to the stimulus spending, in October 2008 China's central bank also cut interest rates and the reserve requirement ratio of banks in order to help increase liquidity in the economy. Most significantly, this announcement was coordinated with similar announcements by the US Federal Reserve, the UK Treasury and central banks of other major economies lowering their benchmark interest rates.
53. Woods, 'Global governance after the financial crisis'.
54. G20 Working Group 4, 'Final report: the World Bank and other multilateral development banks', March 2009, pp. 1-12.
55. Asian Development Bank, 'Enhancing ADB's response to the global economic crisis: establishing the countercyclical support facility', ADB policy paper, May 2009, pp. 1-15.
56. 'China's central bank governor says IMF needs improvement', Xinhua.net (online), 18 April 2009, http://news.xinhuanet.com/english/2009-04/18/content_11210468.htm, accessed 7 April 2010
57. I thank an Indonesian participant-observer at the G20 summits in Washington and London for sharing this information.
58. Asian Development Bank, 'Enhancing ADB's response to the global economic crisis', p. 10.
59. The IDB approved 165 new operations totalling US$15.9 billion in 2009, up from US$11.2 billion in 2008. Disbursements rose to nearly US$12 billion, from US$7.6 billion in 2008. See 'IDB, countering crisis, sets record for loans to Latin America', Inter-American Development Bank News, 29 Dec. 2009, http://www.iadb.org/news/detail.cfm?language=EN&artid=6186&ID=6186, accessed 5 April 2010.
60. 'IDB, countering crisis'.
61. 'Coutinho highlights the importance of regional integration in a meeting held in Argentina', BNDES website, 31 Oct. 2008, http://inter.bndes.gov.br/english/news/not196_08.asp, accessed 22 March 2010.
62. 'BNDES reinforces internationalization by setting up office in Montevideo', BNDES website, 27 Aug. 2009, http://inter.bndes.gov.br/english/news/not103_09.asp, accessed 22 March 2010.
63. 'BNDES reinforces internationalization'.
64. McElhinny, 'Global crisis is good news for IFIs in Latin America', accessed 2 April 2010.
65. Jose Antonio Ocampo, 'A broad view of macroeconomic stability', in Narcis Serra and Joseph Stiglitz, eds, The Washington Consensus reconsidered: towards a new global governance (New York: Oxford University Press, 2009), pp. 63-94.
66. Jennifer Amyx, 'Regional financial cooperation in East Asia since the Asian financial crisis', in Andrew MacIntyre, T. J. Pempel and John Ravenhill, eds, Crisis as catalyst: Asia's dynamic political economy (Ithaca, NY: Cornell University Press, 2008), p. 122; William W. Grimes, Currency and contest in East Asia: the great power politics of financial regionalism (Ithaca, NY: Cornell University Press, 2008).
67. Andrew Willis, 'European Monetary Fund to launch by June', Businessweek, 9 March 2010, http://www.businessweek.com/globalbiz/content/mar2010/gb2010039_054891.htm, accessed 5 April 2010.
68. Willis, 'European Monetary Fund to launch by June'.
69. I thank Avinash Persaud for highlighting this point.
70. On the distinction between the G20 as a global crisis committee and as a global steering committee, see Andrew Cooper's article in this special issue.
71. See Eric Helleiner's article in this special issue.
72. Li Ping, 'Foreign capital and food security in China, part 1', China Economic Observer (Chinese), 9 Sept. 2008; author's discussions with officials of the Canadian Grain Commission and China's State Administration of Grain, Beijing, 2001, 2002.