Law, Trade and Finance
Edited by Ross P. Buckley, Richard Weixing Hu and Douglas W. Arner
Chapter 10: Legitimacy and Power: The Political Dynamics of East Asian Financial Regionalism
Injoo Sohn INTRODUCTION The international monetary system is in a great flux. A series of international financial crises have significantly undermined the legitimacy and effectiveness of the relatively exclusive decision-making structure of the Group of Seven (G7)-centered international financial architecture. The rise of China and other key emerging economies has reshaped the international power configuration, lending great volatility to the existing international monetary system. At the core of the profoundly evolving international financial architecture are the issues of legitimacy and power. The problems of legitimacy deficit and power shift have contributed to challenging the post-World War II international financial architecture in general and stimulating East Asian financial cooperation in particular. The perceived deficiency of political legitimacy, even in the post-Asian crisis global financial architecture, and East Asia’s growing economic power and power balancing have driven East Asian states to become rule makers rather than rule takers through new regional financial arrangements. This chapter will discuss the independent causal effects of legitimacy and power on strategic choices made by East Asian states. In recent years, clear progress has been made in East Asia’s collective efforts to create new regional financial cooperative mechanisms. The main forum for such efforts became one composed exclusively of East Asian countries, notably excluding the United States. The Association for Southeast Asian Nations (ASEAN) member countries and China, Japan and the Republic of Korea (ASEAN+3) have transformed the bilateral swap arrangements under the Chiang Mai Initiative (CMI) into a multilateral arrangement. The multilateralization of the CMI...
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