New Global Economic Architecture

New Global Economic Architecture

The Asian Perspective

ADBI series on Asian Economic Integration and Cooperation

Edited by Masahiro Kawai, Peter J. Morgan and Pradumna B. Rana

The global financial crisis of 2007-2009 exposed flaws and shortcomings in the global economic architecture, and has sparked an international debate about possible remedies for them. The postwar global architecture was essentially guided by the major developed economies, and was centered around the IMF, the GATT – the predecessor of the WTO – and the World Bank. Today, however, the balance of economic and financial power is shifting toward the emerging economies, especially those in Asia, and both global governance and economic policy thinking are beginning to reflect this shift. This book addresses the important question of how a regional architecture, particularly one in Asia, can induce a supply of regional public goods that can complement and strengthen the global public goods supplied through the global architecture. These public goods include institutions to help maintain financial stability, support more open trading regimes and promote sustainable economic development.

Chapter 6: Regional financial regulation in Asia

Masahiro Kawai and Peter J. Morgan

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

This chapter examines the potential roles and institutional implementation of regional financial regulation in Asia. National-level financial surveillance and regulation continue to be the workhorse and the first line of action for preserving financial stability. Under the auspices of the Group of Twenty (G20) following the global financial crisis of 2007–09, there has been an attempt to forge a global consensus on financial reform measures based on proposals made by the Financial Stability Board (FSB) and to strengthen the role of the International Monetary Fund (IMF) both as a surveillance unit and as a global financial safety net. In this chapter we argue that there is a mediating role for regional-level institutions of financial regulation in Asia. This role includes: (i) monitoring financial markets and capital flows to identify regional systemic risks such as capital flows; (ii) coordinating financial sector surveillance and regulation to promote regional financial stability; and (iii) cooperating with global-level institutions in rule formulation, surveillance and crisis management. The Asian Financial Crisis of 1997–98 highlighted the potential value of financial regionalism, that is, regional-level cooperation in economic and financial policy. Many economies in the region found themselves subject to similar shocks and contagion, leading to volatile capital movements and the risk of “sudden stops” and reversals of capital flows.

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