Time to start thinking of a 'New Bretton Woods'?
- By Pradumna B. Rana
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E-mail China Daily, September 29, 2015
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A new round of currency war [By Jiao Haiyang/China.org.cn] |
A key decision in making US-led and China-led institutions complementary rests with the US Congress. Without the Congress ratifying the 2010 International Monetary Fund governance reforms to give greater voice to emerging markets, that will not happen. And as this is unlikely to happen any time soon, we perhaps need to start thinking of a "New Bretton Woods".
In the three-round match between the US and China to have influence in the Asian regional architecture, Round 2, which took place several months ago, went in China's favor. Countries like the United Kingdom, the Republic of Korea and Australia broke ranks with the US, and 57 countries from across the world, including Germany, France, Iran, the United Arab Emirates and Nepal, applied to be the founding members of the Asian Infrastructure Investment Bank. Japan has so far stuck to the US but it has indicated that it remains interested in joining the AIIB, which can be seen as the financing arm of China's Belt and Road Initiative.
Initially, the US attempted to dissuade potential applicants by citing poor governance and due diligence at the proposed AIIB. But it made a dramatic turnaround later.
Less well known is Round 1 after the Asian financial crisis of 1997-1998 when the US and the US-led IMF shot down proposals to establish the Asian Monetary Fund (AMF). At that time, IMF surveillance had failed to adequately identify the risks posed by the uneven pace of capital account liberalization in the region and the extent of the banking sector's weaknesses.
The IMF had, therefore, initially misdiagnosed the Asian financial crisis and prescribed inappropriate policies which exacerbated the impacts of the crisis and led to a free-fall of currencies, fanned the contagion, and pushed the region into sharp recession. This led countries in the region to initiate regional "self help" measures to take things under their control.
Although the AMF was stillborn, the region established a $240-billion crisis management fund called the Chiang Mai Initiative Multilateralization (CMIM) and the ASEAN+3 Macroeconomic Research Office, which is the "independent surveillance unit" for the CMIM. But the idea of the AMF has not been entirely forgotten and keeps coming up every now and then.
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