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Regional financing arrangements and the stability of the international monetary system

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  • MacKay, Julie
  • Volz, Ulrich
  • Wölfinger, Regine

Abstract

Developments in regional financing arrangements, such as the strengthening of the Chiang Mai Initiative in East Asia, and the increased lending in the global financial crisis are increasingly raising questions about their contribution to the stability of the international financial system, and their relation to the International Monetary Fund (IMF) and its role in safeguarding that stability. Key questions concern the implications of regional financing arrangements for the lending and surveillance functions of the IMF and whether they could come to supplant Fund financing. Indeed, emerging market interest in regional financing arrangements may be attributed to perceptions of an undue burden of conditionality attached to IMF lending, and the dissatisfaction expressed by larger, dynamic emerging market economies over their lack of influence in the Fund’s decision-making, as evident in their calls for representation commensurate with their economic significance. This issue has not yet been squarely addressed, and this paper seeks to fill that gap. It explores the argument that the contribution of regional financing arrangements to the stability of the international monetary and financial system depends on their design and operation. To gauge the quality of a regional financing arrangement, we establish a set of critical factors – “optimal financing criteria” – relevant for providing crisis financing, using a first principles approach. We then evaluate the frameworks for the IMF and the various regional arrangements in existence against these criteria. Results suggest that the design and operation of regional arrangements determine whether the extent to which they help alleviate crises. In essence, we find that those in existence can be expected to have superior information about the economy in crisis, and react more quickly to address a situation, but may lack the expertise to define the policy course towards external sustainability and the amount of funding necessary to reassure markets.

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  • MacKay, Julie & Volz, Ulrich & Wölfinger, Regine, 2010. "Regional financing arrangements and the stability of the international monetary system," IDOS Discussion Papers 13/2010, German Institute of Development and Sustainability (IDOS).
    • Handle: RePEc:zbw:diedps:132010
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    1. Scheubel, Beatrice & Stracca, Livio, 2019. "What do we know about the global financial safety net? A new comprehensive data set," Journal of International Money and Finance, Elsevier, vol. 99(C).
    2. Ulrich volz, 2012. "Strengthening Cooperation between Regional Financing," Papers and Proceedings 11855, Fondo Latino Americano de Reservas - FLAR.
    3. McKay Julie & Volz Ulrich & Wölfinger Regine, 2011. "Regional Financing Arrangements and the Stability of the International Monetary System," Journal of Globalization and Development, De Gruyter, vol. 2(1), pages 1-33, August.
    4. Laurissa Mühlich & Barbara Fritz, 2018. "Safety for Whom? The Scattered Global Financial Safety Net and the Role of Regional Financial Arrangements," Open Economies Review, Springer, vol. 29(5), pages 981-1001, November.
    5. Ilene Grabel, 2013. "Global Financial Governance and Development Finance in the Wake of the 2008 Financial Crisis," Feminist Economics, Taylor & Francis Journals, vol. 19(3), pages 32-54, July.
    6. Ulrich Volz, 2013. "Lessons of the European crisis for regional monetary and financial integration in East Asia," Asia Europe Journal, Springer, vol. 11(4), pages 355-376, December.
    7. Barbara Fritz & Laurissa Mühlich, 2019. "Regional Financial Arrangements in the Global Financial Safety Net: The Arab Monetary Fund and the Eurasian Fund for Stabilization and Development," Development and Change, International Institute of Social Studies, vol. 50(1), pages 96-121, January.
    8. Guillermo Perry, 2013. "Regional Public Goods in Finance, Trade and Infrastructure," Documentos CEDE 11888, Universidad de los Andes, Facultad de Economía, CEDE.
    9. Laurissa Mühlich & Barbara Fritz, 2021. "Borrowing Patterns in the Global Financial Safety Net: Does Governance Play a Role?," Global Policy, London School of Economics and Political Science, vol. 12(S4), pages 47-68, May.
    10. Edwin M. Truman, 2011. "Asian regional policy coordination," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 247-292.
    11. C. Randall Henning, 2011. "Coordinating Regional and Multilateral Financial Institutions," Working Paper Series WP11-9, Peterson Institute for International Economics.
    12. Kevin P. Gallagher & Haihong Gao & William N. Kring & José A. Ocampo & Ulrich Volz, 2021. "Safety First: Expanding the Global Financial Safety Net in Response to COVID‐19," Global Policy, London School of Economics and Political Science, vol. 12(1), pages 140-148, February.
    13. Ilene Grabel, 2019. "Continuity, Discontinuity and Incoherence in the Bretton Woods Order: A Hirschmanian Reading," Development and Change, International Institute of Social Studies, vol. 50(1), pages 46-71, January.
    14. D. Essers & E. Vincent, 2017. "The global financial safety net :In need of repair ?," Economic Review, National Bank of Belgium, issue ii, pages 87-112, september.
    15. William N. Kring & Kevin P. Gallagher, 2019. "Strengthening the Foundations? Alternative Institutions for Finance and Development," Development and Change, International Institute of Social Studies, vol. 50(1), pages 3-23, January.
    16. Stracca, Livio & Scheubel, Beatrice, 2016. "What do we know about the global financial safety net? Rationale, data and possible evolution," Occasional Paper Series 177, European Central Bank.
    17. Luca Alfieri & Nino Kokashvili, 2020. "Financial Safety Nets In East Asia And Europe: A Political Economy Assessment," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 121, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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