Building a Unified Decision-Making Administration for East Asian Financial Cooperation

1. Building a Unified Decision-Making Administration for East Asian Financial Cooperation

2. I. Why do we need a unified administration • Transition of BSA to a multilateralized arrangement • Upgrade of ERPD, implementation of various initiatives and agreements • Development of East Asian bond markets • Establishment and operation of ACU • Establishment and management of EA Infrastructure Investment Fund in discussion

3. i. Transition of BSA to a multilateralized arrangement • Adopt the collective decision-making procedure • Build self-managed reserve pooling arrangement • Integrate ASEAN +3 EPRD into the CMI framework

4. ii. Implementation of Various Initiatives and Agreements Various Existing ERPD dialogue • ASEAN +3 Finance Ministers’ Meeting • ASEAN +3 Finance and Central Bank deputies Meeting • ASEAN Finance Ministers’ Meeting After the multilateralization of CMI, ERPD will gradually develop from information sharing to peer review, peer pressure, even to due diligence.

5. iii. Promotion of EA Bond Market Growth • ABMI proposed by finance ministers and ABMF by EMEAP promoted the development of EA countries’ local currency bond market and the enlargement of market size. • But reduction of financing dependence on bank credit and realization of regional bond market integration need a unified authority to further encourage and facilitate.

6. iv. Creation and Operation of ACU • Coordinate different countries’ standpoints of ACU construction and balance their interests • How to compile ACU and determinate the weight of member’s currency in the basket • What roles does ACU play • How to promote monetary integration in EA by ACU

7. v. Establishment of an Asian Infrastructure Investment Fund • Share the quota of each country in the Fund • Establish rules and articles for the Fund • approve the application for use of fund

8. II. Alternatives for building a unified decision-making administration • “10+3” Finance Ministers’ Meeting • “10+3” Central Bank Governors’ Meeting • “10+3” Finance Ministers’ Meeting + ADB • “10+3” Joint Meeting ofFinance Ministers and Central Bank Governors

9. i. “10+3” Finance Ministers’ Meeting • Advantages: • Enjoyed a long history of operation; • Organized ERPD, CMI, ABMI and other East Asian financial cooperation initiatives; • The Finance Ministers has irreplaceable power over the government expenditure and macro economical policies. • Disadvantages: • Only one annual meeting; • Ministers merely report their own national economy and finance situation; • Without a standing executive committee, with little influence over the member countries’ economic policies.

10. ii. “10+3” Central Bank Governors’ Meeting • Advantages: • Control or implement national monetary policies; • Know intimately the development levels of financial markets and financial position of their own countries; • Be skillful at financial tools. Some governors are also EMEAP members that are closely connected to the Asian bond market’s growth. • Disadvantages: • Haven’t formed a mechanism, only the Deputies Meeting • Not participating in CMI and the building of East Asian Reserve Pool.

11. iii. “10+3” Finance Ministers’ Meeting + ADB • Advantages: Combines the advantages of “10+3” Finance Ministers’ Meeting and the experiences of ADB’s management and operation of the development fund, and brings the potential of ADB in creating and operating ACU into the full play. • Disadvantages: Can’t give full play to the central bank governors.

12. Iv. “10+3” Joint Meeting of Finance Ministers and Central Bank Governors • Advantages: With the Finance Ministers’ Meeting mechanism as the foundation, it combines the advantages of both Finance Ministers’ Meeting and Central Bank Governors’ Meeting, and sets up unified administration of major processes of ERPD, CMI, ABMI and other East Asian financial cooperation. • Disadvantage: Lack of anexecutive committee.

13. III. Conclusion and Suggestion It’s time for innovation on the administration: On the basis of the Finance Ministers’ Meeting, by taking in the Central Bank Governors of the member countries, we need tobuild the “10+3” Joint Meeting process of Finance Ministers and Central Bank Governors, and set up the executive committee.

14. Composition of the Executive Committee The executive committee is responsible for the actual implementation of the proposals and decisions made by the Joint Meeting, and urge the member countries to carry them out. Four Departments: • Economic and monetary policy review and coordination; • Multilateral reserve pool and investment fund management; • Bond market development ; • Currency & exchange rate review.

15. Departments Should Stay in Close Touch with Existing Agencies: • The departments of multilateral reserve pool and investment fund management could entrust ADB or other investment agencies to operate the Infrastructure Investment Fund; • The department of bond market development could share info with EMEAP, have consultations, and jointly formulate development plans and operation arrangement ; • The department of monetary & exchange rate review could form partnership with ADB, execute the resolutions of the Finance Ministers and Central Bank Governors’ Joint Meeting, jointly complete the construction of ACU and consultation of exchange rates to promote cooperation in currency and exchange rates in East Asia.