Chiang Mai Initiative

Short description: Multilateral currency swap arrangement

Participants of the Chiang Mai Initiative: regular ASEAN states marked light green; Plus Three states marked green

The Chiang Mai Initiative (CMI) is a multilateral currency swap arrangement among the ten members of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China (including Hong Kong), Japan, and South Korea. It draws from a foreign exchange reserves pool worth US$120 billion and was launched on 24 March 2010. That pool has been expanded to $240 billion in 2012.[1]

The initiative began as a series of bilateral swap arrangements after the ASEAN Plus Three countries met on 6 May 2000 in Chiang Mai, Thailand, at an annual meeting of the Asian Development Bank. After 1997 Asian financial crisis, member countries started this initiative to manage regional short-term liquidity problems and to avoid relying on the International Monetary Fund.[2]

## Contents

* 1 History
* 1.1 Conception
* 1.2 Expansion
* 1.3 Multilateralisation
* 2 Participants
* 2.1 ASEAN
* 2.2 People's Republic of China
* 2.3 Japan
* 2.4 South Korea
* 3 Further reading
* 4 See also
* 5 Notes
* 6 References
* 7 External links

## History

### Conception

Former IMF Managing Director Horst Köhler: "Our advice [to the East Asian region] is to pursue regionalisation, not in opposition to the IMF, because the IMF is a global institution, but to do it in a complementary fashion".[3]

At the height of the 1997 Asian financial crisis, Japanese authorities proposed an Asian Monetary Fund, which would serve as a regional version of the International Monetary Fund (IMF). However, this idea was shelved after encountering strong resistance from the United States.[4] After the crisis, finance ministers of members of the Association of Southeast Asian Nations (ASEAN), the People's Republic of China, Japan, and South Korea met on 6 May 2000 at the 33rd Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) in Chiang Mai, Thailand, to discuss the establishment of a network of bilateral currency swap agreements.[5] The proposal was dubbed the Chiang Mai Initiative and intended to avoid a future recurrence of the Asian Financial Crisis. It also implied the possibility of establishing a pool of foreign exchange reserves accessible by participating central banks to fight currency speculation.[6] The proposal would also supplement the financial resources of international institutions such as the IMF.[7][8] Joint Ministerial Statement (JMS) was issued after the ASEAN+3 Finance Minister's Meetings have mentioned the development of the CMI.[9]

Early critics questioned the reasoning behind the initiative. The Asia Times Online wrote in an editorial published several days after the meeting, "The idea that the existence of a currency swap arrangement or the wider concept of an Asian monetary fund [...] could have prevented the Asian crisis or the worst of it, is both wrong and politically noxious."[10] After IMF Managing Director Horst Köhler visited five Asian nations, including Thailand, in June 2000, the Asia Times Online denounced his endorsement of "the ill-conceived and likely never to be implemented Asean plus three [...] currency-swap plan".[11] In a 2001 interview with the Far Eastern Economic Review, Köhler stated that the CMI would promote regional economic co-operation and development and that he would not oppose the formation of an Asian Monetary Union.[3]

### Expansion

As of 16 October 2009, the network consisted of 16 bilateral arrangements among the ASEAN Plus Three countries worth approximately US$90 billion. Additionally, the ASEAN Swap Arrangement had a reserves pool of approximately US$2 billion.[12]

### Multilateralisation

Foundation of CMI was meant to expand bilateral swaps of ASEAN. In addition, it was to aid the existing financial facilities of IMF. Nonetheless, the 2008 financial crisis proved that the CMI was not working up to its expectation and was in need of further development. Instead of seeking for CMI liquidity provision, Korea and Singapore used the US Federal Reserve as their way of securing liquidity, and Indonesia sought support from China and Japan.[13] Consequently, policy-makers realised that the CMI needed a reserve pooling arrangement and took action to multilateralise the initiative. Hence, the Chiang Mai Initiative Multilateralisation (CMIM) Agreement was founded in 2009. In February 2009, ASEAN+3 agreed to expand the fund to $120 billion up from the original level of $78 billion proposed in 2008.[14][15]

During the April 2009 meeting of ASEAN finance ministers in Pattaya, Thailand, the individual contributions to be made by each member state toward the reserves pool were announced. Each of the six original ASEAN members—Indonesia, Malaysia, Singapore, the Philippines, and Thailand—agreed to contribute US$4.77 billion, while each of the remaining four members would contribute between US$30 million and US$1 billion.[16] The ten countries were scheduled to meet their partners following the finance ministers' meeting, but the summit's cancellation due to the Thai political crisis delayed the launch of the multilateral agreement to a later date.[17][18] When leaders of the thirteen countries finally met in Bali in May, they finalised the individual contributions of China, Japan, and South Korea.[19] This summit also added Hong Kong as a new participant, whose contribution was added to that of China though Hong Kong remained "a monetary administration on its own". Its participation raised China's total contribution to US$38.4 billion, equal to that of Japan, and South Korea, which agreed to contribute US$19.2 billion. China and Japan remain the biggest contributors, each contributing 32 percent of total financial contributions. Including Korea, these three countries account for 80 percent of all the contributions made to CMIM while the remaining 20 percent is from ASEAN countries.[20]

On 3 May 2012, 15th ASEAN+3 Finance Ministers and Central Bank's Governors’ meeting was held in Manila, Philippines which made an agreement about expanding CMIM from current $120 billion to 240 billion. The ASEAN+3 also agreed to adopt the CMIM Precautionary Line (CMIM-PL), which is designed on the model of PPL program within the IMF to prevent the financial crisis. In addition, IMF de-linked portion is raised from 20 percent to 30 percent and with its future goal of reaching 40 in the year 2014. Regarding the expanded funding of CMIM, countries now can receive up to $30 billion.[21]

The Chiang Mai Initiative Multilateralisation (CMIM) Agreement was signed on 28 December 2009,[22][23] and took effect on 24 March 2010.[24][25]

[26]

## Participants

Bloomberg estimated that participants of the Chiang Mai Initiative held more than US$4.1 trillion of foreign exchange reserves in 2009.[27][28]

Flag | Country | Currency | Central bank | 2013 Nominal GDP
(millions of US$) | 2013 PPP GDP
(millions of US$) | Financial contribution[29]
(millions of US$) | Maximum borrowing
(millions of US$)

|
|
|
|
|
|
|

| China and Hong Kong | yuan and dollar | People's Bank of China and Hong Kong Monetary Authority | 9,300,911[Note 1] | 14,009,813[Note 2] | 38,400[Note 3] | 19,200
| Japan | yen | Bank of Japan | 5,149,897 | 4,778,523 | 38,400 | 19,200
| South Korea | won | Bank of Korea | 1,258,586 | 1,687,138 | 19,200 | 19,200
| Indonesia | rupiah | Bank Indonesia | 946,391 | 1,314,660 | 4,770 | 11,925
| Thailand | baht | Bank of Thailand | 424,985 | 701,554 | 4,770 | 11,925
| Malaysia | ringgit | Bank Negara Malaysia | 327,911 | 532,515 | 4,770 | 11,925
| Singapore | dollar | Monetary Authority of Singapore | 286,925 | 338,551 | 4,770 | 11,925
| Philippines | peso | Bangko Sentral ng Pilipinas | 284,472 | 457,314 | 3,680 | 9,200
| Vietnam | đồng | State Bank of Vietnam | 155,952 | 343,024 | 1,000 | 5,000
| Cambodia | riel | National Bank of Cambodia | 15,672 | 39,734 | 120 | 600
| Myanmar (Burma) | kyat | Central Bank of Myanmar | 57,439 | 96,812 | 60 | 300
| Brunei Darussalam | dollar | Brunei Currency and Monetary Board | 16,451 | 22,305 | 30 | 150
| Laos | kip | Bank of the Lao P.D.R. | 10,262 | 21,083 | 30 | 150

Notes

1. ↑ The individual nominal GDP of the People's Republic of China and of Hong Kong are US$9,020,309 million and US$280,682 million respectively.
2. ↑ The individual PPP GDP of the People's Republic of China and of Hong Kong are US$13,623,255 million and US$386,558 million respectively.
3. ↑ Hong Kong's US$4,200 million contribution is included in that of the People's Republic of China.

### ASEAN

Foreign exchange reserves of ASEAN members Country  | Foreign exchange reserves
(US$)  | Figure as of

|
|

Brunei Darussalam  | 50,000,000,000  | December 2007[30]
Cambodia  | 3,732,000,000  | Dec 2012[31]
Indonesia  | 107,269,160,000  | Apr 2013[32]
Laos  | 822  | Dec 2012[33]
Malaysia  | 140,312,200,000  | Apr 2013[34]
Myanmar (Burma)  | 3,600,000,000  | November 2009[35]
Philippines  | 83,951,540,000  | Mar 2013[36]
Singapore | 261,678,000,000  | Apr 2013[37]
Thailand  | 177,803,000,000  | Mar 2013[38]
Vietnam  | 20,900,000,000  | Dec 2012[39]

### People's Republic of China

China holds the world's largest foreign exchange reserves, which reached US$1 trillion in November 2006.[40] The figure doubled in the second quarter of 2009 and had risen by almost 14 times within the past decade. According to a Deutsche Bank official, "China's reserves will allow the [United States] to run a higher fiscal deficit than other nations". This deficit was caused by the US government's additional spending in an effort to revive the economy from a recession.[41] The reserves reached US$2.27 trillion in September 2009, and the country's sovereign wealth fund—the China Investment Corporation—had become more aggressive in its foreign investments.[42]

[43]

### Japan

Japan possesses the second largest foreign exchange reserves.[24] It became the second country to reach US$1 trillion in reserves in February 2008. In contrast to China, which places "stringent" control on its currency, the Japanese government has not placed any control on the yen since 2004.[44] The reserves reached US$1.06 trillion in October 2009.[45]

### South Korea

South Korea ranked sixth in foreign exchange reserves, which reached US$270.9 billion in November 2009.[45] It accounted for 6.4 percent of the total ASEAN Plus Three reserves and 8 percent of the combined gross domestic product of the participating countries in 2009.[46] The Korea Times wrote in an editorial that the country should act as a mediator between China and Japan, whose equal contributions meant that both "should refrain from racing for regional hegemony in the cooperative grouping".[47]

## Further reading

* Grimes, William W., The Asian Monetary Fund Reborn? Implications of Chiang Mai Initiative Multilateralization (Asia Policy, January 2011)
* Lipscy, Phillip Y., Japan's Asian Monetary Fund Proposal (Stanford Journal of East Asian Affairs, Spring 2003)

## See also

* Comprehensive Economic Partnership for East Asia
* Asian Monetary Unit

## Notes

1. ↑ "The News International: Latest News Breaking, Pakistan News". http://www.thenews.com.pk/Todays-News-3-98519-Briefs.
2. ↑ Stiglitz, Joseph E. (2007). Making Globalization Work. Penguin Books. §9, p. 261. ISBN 9780141024967.
3. ↑ 3.0 3.1 "Focusing the Fund on Financial Stability". Far Eastern Economic Review: pp. 48–50. 14 June 2001. http://www.feer.com/articles/2001/0106_14/p048money.html.
4. ↑ Lipscy, Phillip Y. "Japan's Asian Monetary Fund Proposal." Stanford Journal of East Asian Affairs 3(1): 93-104
5. ↑ "ASEAN, China, Japan, S.Korea Agree on Currency Swap". People's Daily. 7 May 2000. http://english.people.com.cn/english/200005/07/eng20000507_40281.html.
6. ↑ Crampton, Thomas (8 May 2000). "East Asia Unites to Fight Speculators". The New York Times. https://www.nytimes.com/2000/05/08/news/08iht-adb.2.t.html.
7. ↑ "Asians will defend their money". Manila Standard. Associated Press: pp. 1–2. 8 May 2000. "Countries would lend dollars to each other to help defend the value of their currencies during speculative attacks or other currency problems. The loans would be paid back in local currencies at a fixed rate. It would complement existing international institutions, the statement said, acknowledging likely opposition from the United States if a deal eventually led to an attempt to replace the Washington based International Monetary Fund. Malaysia, which has long urged fellow Asian nations to rely on each other for help, rather than on the West, refused the IMF's treatment and suffered less in the crisis than others."
8. ↑ Mahboob-ul Alam, Chaklader (12 November 2009). "The Chiang Mai currency initiative". The Daily Star. http://www.thedailystar.net/newDesign/news-details.php?nid=113654.
9. ↑ "ASEAN Plus Three Cooperation Database". Association of Southeast Asian Nations. 9 January 2009. http://www.asean.org/archive/22208.pdf.
10. ↑ "Silly scheming in Chiang Mai". Asia Times Online. 9 May 2000. http://www.atimes.com/editor/BE09Ba01.html.
11. ↑ "IMF revisits the scene of the crime". Asia Times Online. 3 June 2000. http://www.atimes.com/editor/BF03Ba01.html.
12. ↑ "The Agreement on the Swap Arrangement under the Chiang Mai Initiative (as of October 16, 2009)". Bank of Japan. 16 October 2009. http://www.boj.or.jp/en/type/release/adhoc09/data/un0910a.pdf.
13. ↑ Sussangkarn, Chalongphob (22 January 2015). "The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook". Asian Development Bank. http://www.adbi.org/files/2010.07.13.wp230.chiang.mai.initiative.multilateralisation.pdf.
14. ↑ "Action Plan to Restore Economic and Financial Stability of the Asian Region". ASEAN. 22 February 2009. http://www.asean.org/news/asean-statement-communiques/item/joint-media-statement-action-plan-to-restore-economic-and-financial-stability-of-the-asian-region-phuket-thailand-22-february-2009.
15. ↑ "Asia set to boost emergency fund". BBC News. 22 February 2009. http://news.bbc.co.uk/2/hi/business/7904414.stm.
16. ↑ "ASEAN countries agree on individual contributions to regional reserve pool". Xinhua News Agency. 9 April 2009. http://news.xinhuanet.com/english/2009-04/09/content_11159564.htm.
17. ↑ Romero, Alexis Douglas B. (14 April 2009). "Planned regional fund faces delay". BusinessWorld 22 (178). http://www.bworldonline.com/BW041409/content.php?id=002.
18. ↑ Wijaya, Agoeng (14 April 2009). "Talks on ASEAN+3 Crisis Fund Continues Despite Bangkok Riots". Tempo. http://www.tempointeractive.com/hg/nasional/2009/04/14/brk,20090414-170246,uk.html.
19. ↑ "ASEAN, China, Japan, SKorea finalise crisis pact". Agence France-Presse. 3 May 2009. https://www.google.com/hostednews/afp/article/ALeqM5gjvs9kCsNuS_RsMZf3wIME54FHqA.
20. ↑ "The Establishment of The Chiang Mai Initiative Multilateralization (Joint Press Release)". Ministry of Finance (Singapore). 28 December 2009. http://app.mof.gov.sg/newsroom_details.aspx?news_sid=20091228858850831466.
21. ↑ "ASEAN+3 Finance Ministers and Central Bank Governors' Meeting Successfully Concludes". Ministry of Strategy and Finance (Korea).. 3 May 2012. http://english.mosf.go.kr/upload/mini/2012/05/FILE_A66G81_20120503182819_1.pdf.
22. ↑ "Asean Members Sign Chiang Mai Initiative Multilateralization Agreement". Bernama. 28 December 2009. http://www.bernama.com.my/bernama/v3/news_lite.php?id=464795.
23. ↑ "Chiang Mai Initiative multilateral accord signed". The Star. 29 December 2009. http://biz.thestar.com.my/news/story.asp?file=/2009/12/29/business/5376484&sec=business.
24. ↑ 24.0 24.1 "Date set for currency swap". The Japan Times. 30 December 2009. http://search.japantimes.co.jp/cgi-bin/nb20091230a2.html.
25. ↑ Yoon, Ja-young (28 December 2009). "Asian Monetary Fund to Debut in March". The Korea Times. https://www.koreatimes.co.kr/www/news/biz/2009/12/123_58046.html.
26. ↑ "ASEAN+3's $120b swap deal put in place". The Jakarta Post. 29 December 2009. http://www.thejakartapost.com/news/2009/12/29/asean3’s-120b-swap-deal-put-place.html.
27. ↑ Ito, Aki; Yong, David (28 December 2009). "ASEAN, Japan, China Form $120 Billion Reserve Pool". Bloomberg. https://www.bloomberg.com/apps/news?pid=20601068&sid=ayyiso8ssyb8.
28. ↑ Rajan, Ramkishen S. (14 December 2009). "Come closer, all Asians". The Financial Express. http://www.financialexpress.com/news/Come-closer--all-Asians/553604.
29. ↑ "The Establishment of the Chiang Mai Initiative Multilateralization". Ministry of Finance (Japan). 28 December 2009. p. 2. http://www.mof.go.jp/english/if/091228press_release.pdf.
30. ↑ Berthelsen, John (14 January 2008). "Asia Ponders Its Astounding Foreign Exchange Reserves". Asia Sentinel.
31. ↑ "Cambodia reserves top $3.5b". The Straits Times. Agence France-Presse. Dec 2012.
32. ↑ "Monetary Indicators". Bank Indonesia. 30 November 2009.
33. ↑ "Lao Monetary Statistics Q2 2009". Bank of the Lao People's Democratic Republic. Dec 2012.
34. ↑ "International Reserves and Foreign Currency Liquidity". Bank Negara Malaysia. 30 November 2009.
35. ↑ Macan-Markar, Marwaan (30 November 2009). "Burma: Nobel Laureate Stiglitz to Advise Junta on Poverty". Inter Press Service.
36. ↑ "International Reserves". Central Bank of the Philippines. Mar 2013.
37. ↑ "Official Foreign Reserves". Monetary Authority of Singapore. 7 December 2009.
38. ↑ "Reserve Money and International Reserve Report". Bank of Thailand. Mar 2013.
39. ↑ Thomas, Beth; Nguyen, Dieu Tu Uyen (Dec 2012). "Vietnam to Use First Bond Sale in 4 Years for Energy". Bloomberg.
40. ↑ Schifferes, Steve (2 November 2006). "China's trillion dollar surplus". BBC News. http://news.bbc.co.uk/2/hi/business/6106280.stm.
41. ↑ Hamlin, Kevin; Li, Yanping; Worrachate, Anchalee; Kennedy, Simon; Hendry, Sandy; Carrigan, Justin (16 July 2009). "China $2 Trillion Reserves Keep U.S. Stimulus Afloat". Bloomberg. https://www.bloomberg.com/apps/news?pid=20601087&sid=a6S8.q2ojxn0.
42. ↑ Wang, Aileen; Rabinovitch, Simon (4 January 2010). "China must invest forex in resources -c.bank official". Thomson Reuters. http://uk.reuters.com/article/idUKTOE60303E20100104.
43. ↑ McCullough, Keith R. (28 December 2009). "China Charts Its Own Path". Forbes. https://www.forbes.com/2009/12/28/china-dollar-stocks-markets-economy-2010.html.
44. ↑ Chen, Shu-Ching Jean (7 March 2008). "$1 Trillion In Forex Reserves Less Than It Seems For Japan". Forbes. https://www.forbes.com/2008/03/07/japan-forex-dollar-markets-currency-cx_jc_0307markets1.html.
45. ↑ 45.0 45.1 Lee, Hyo-sik (2 December 2009). "Currency Reserves Hit Record High of $271 Bil.". The Korea Times. https://koreatimes.co.kr/www/news/biz/2009/12/123_56542.html.
46. ↑ "Asian Currency Swap Fund to Guard Against Future Crises". The Chosun Ilbo. 29 December 2009. http://english.chosun.com/site/data/html_dir/2009/12/29/2009122900287.html.
47. ↑ "Asian Currency Union". The Korea Times. 29 December 2009. https://www.koreatimes.co.kr/www/news/opinon/2009/12/137_58134.html.

## References

* Asami, Tadahiro (1 March 2005). "Chiang Mai Initiative as the Foundation of Financial Stability in East Asia". Institute for International Monetary Affairs. http://www.asean.org/17905.pdf.
* Henning, C. Randall (2002) (PDF). East Asian Financial Cooperation. Washington, D.C.: Peterson Institute for International Economics. ISBN 978-0-88132-338-2. http://bookstore.piie.com/book-store/345.html. Retrieved 2 January 2010.
* Park, Yung Chul; Wang, Yunjong (14 January 2005). "The Chiang Mai Initiative and Beyond". The World Economy 28 (1): 91–101. doi:10.1111/j.1467-9701.2005.00618.x.
* Rana, Pradumna B. (February 2002). Monetary and Financial Cooperation in East Asia: The Chiang Mai Initiative and Beyond. Economics Research Department Working Paper Series. Asian Development Bank. ISSN 1655-5252. http://www.adb.org/Documents/ERD/Working_Papers/wp006.pdf. Retrieved 23 January 2010.

## External links

* Regional Financial Cooperation among ASEAN+3

Template:Association of Southeast Asian Nations (ASEAN)

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