The Asian Monetary Fund: Just talk or potential reality?

Insights

The Asian Monetary Fund: Just talk or potential reality?

In April 2023, Malaysia’s prime minister, Anwar Ibrahim, revived the idea of an Asian Monetary Fund (AMF)

  • China seeks to use its might and ambition to disrupt the current global financial architecture, challenging the International Monetary Fund’s hegemony and authority
  • An Asian Monetary Fund will allow Asian countries to diversify their financial engagements, allowing regional financial autonomy, a stronger financial safety net and financial stability
  • In the current geopolitical environment, an AMF could give Asian countries a stronger voice in decision-making processes and thus, rebalance the influence of global financial institutions across Asia

In April 2023, Malaysia’s prime minister, Anwar Ibrahim, revived the idea of an Asian Monetary Fund (AMF). A proposal for this was first put forward in 1997 by Japan following the Asian financial crisis.1

The AMF would have the primary objectives of promoting financial stability, providing emergency lending facilities, facilitating currency swap arrangements, and enhancing regional cooperation in monetary and financial matters. It would aim to address balance of payment difficulties, currency crises, and other financial challenges collectively faced by Asian economies. The proposal was unfortunately met with scepticism for fear of potentially fragmenting the global financial architecture and undermining the International Monetary Fund’s authority and effectiveness. However, there is still a need to address vulnerabilities in the region, especially when IMF solutions do not necessarily cater to the unique concerns and challenges of Asian countries.

The desire for greater regional financial autonomy, increased regional cooperation and a stronger financial safety net within Asia led to the 2010 Chiang Mai Initiative (CMIM). This involved the Association of East Asian Countries (ASEAN) plus China, South Korea and Japan, and the establishment of various bilateral currency swap agreements. Numerous members have since utilised the swap agreements when experiencing short-term liquidity difficulties – for example, Thailand and South Korea during the global financial crisis (GFC) in 2008-2009, and Indonesia, Philippines and Malaysia between 2013-2014, which helped stabilise financial volatility.

While these mechanisms contribute to regional financial cooperation and provide some level of support, they do have limitations in terms of coverage, surveillance and crisis management capabilities compared to what a fully fledged AMF could do. The CMIM, for example, doesn’t include Sri Lanka and Pakistan which often find struggle financially, despite the numerous IMF programs they have embraced.

In the current geopolitical environment, an AMF is seen as a way to rebalance the influence of global financial institutions and give Asian countries a stronger voice in decision-making processes, especially as education and governance has improved significantly since 1997. Some Asian countries perceive the IMF as being biased toward western interests, and during the Asian financial crisis felt their needs and concerns were not adequately taken into account. There is a feeling the IMF’s “one size fits all” approach may actually do more harm than good.

With China’s current might and ambitions to maximise its position in the global financial landscape, the AMF idea has unsurprisingly won the backing of President Xi Jin Ping. As it stands, China as the world’s largest bilateral lender disagrees with IMF stipulations. It has expressed that it seeks to provide debt relief to defaulting countries but also expects multilateral financial institutions to participate in these restructurings. Without their participation, China refuses to take a haircut in debt restructuring conversations alongside other private creditors. Instead, it offered Zambia a two-year moratorium on debt and interest repayments in January 2023, and maintains talks with Sri Lanka over the latter’s debt.

An AMF could also further help China with its RMB internationalisation ambitions, especially as other countries such as Russia, Brazil and the European Union are trying to shift away from a reliance on the US dollar.

For emerging market debt investors, the prospect of an AMF has meaningful implications. In the near term, while China plans a redesign of the financial architecture, it may be even more averse to taking a haircut in debt restructurings. Sovereign debt workouts risk becoming even more complex and drawn-out affairs than they are at present.

In the medium term, with a new AMF, Asian countries – especially those not involved in CMIM – can diversify their financial engagements and reduce their vulnerability to unwanted external pressures and biases. This can lead to sovereign ratings upgrades and improved resilience in the associated local currencies. So why not embrace an additional insurance option for a rainy day?

1 Agosto 2023
Lin Jing Leong
Lin Jing Leong
Senior Sovereign Analyst, Emerging Market Asia
Share article
Key topics
Related topics
Listen on Stitcher badge
Share article
Key topics
Related topics

PDF

The Asian Monetary Fund: Just talk or potential reality?

1 Nikkei Asia, Asian Monetary Fund idea revived amid U.S.-China row, April 2023

Important Information

© 2023 Columbia Threadneedle Investments. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

For professional investors only.

This financial promotion is issued for marketing and information purposes only by Columbia Threadneedle Investments in the UK.

The Fund is a sub fund of Columbia Threadneedle (UK) ICVC VII, an open ended investment company (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA).

English language copies of the Fund’s Prospectus, summarised investor rights, English language copies of the key investor information document (KIID) can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com. Please read the Prospectus before taking any investment decision.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority.

Related Insights

5 Novembro 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – November 2024

Our fixed income team provide their weekly snapshot of market events.
30 Outubro 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – October 2024

Our fixed income team provide their weekly snapshot of market events.
25 Outubro 2024

Gary Smith

Client Portfolio Manager, Fixed Income

Economic nationalism will present a constant challenge for investors

A decade ago there was little sight of the seismic changes that have since occurred; similarly, events that might be impossible to imagine today will undoubtedly jolt financial markets in coming years.
11 Novembro 2024

Paul Doyle

Head of Europe ex-UK Equities

European reform must wait as the US continues to advance

The continent is struggling with competitiveness and needs to cut interest rates faster – but even that may not be enough.
11 Novembro 2024

Steven Bell

Chief Economist, EMEA

Will trade wars end the Equity Bull market?

Assessing the impact of Trump-era trade tariffs.
5 Novembro 2024

Scott Woods

Portfolio Manager

WD-40, the graveyard cabinet and a hunt for special smaller companies

I spend about nine weeks a year in a rental car looking for companies all over the world, discovering their products, operations and customers. Here's what I'm looking for.
true
true

Important Information

© 2023 Columbia Threadneedle Investments. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

For professional investors only.

This financial promotion is issued for marketing and information purposes only by Columbia Threadneedle Investments in the UK.

The Fund is a sub fund of Columbia Threadneedle (UK) ICVC VII, an open ended investment company (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA).

English language copies of the Fund’s Prospectus, summarised investor rights, English language copies of the key investor information document (KIID) can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com. Please read the Prospectus before taking any investment decision.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority.

Também poderá gostar de

Sobre nós

Milhões de pessoas em todo o mundo confiam na Columbia Threadneedle Investments para gerir o seu dinheiro. Acompanhamos investimentos para investidores individuais, consultores financeiros, gestores de património, bem como companhias de seguros, fundos de pensões e outras instituições.

Contactos

Para mais informações sobre a Columbia Threadneedle Investments ou os nossos produtos, entre em contacto connosco ou com o seu consultor.

Responsabilidade social corporativa

Nuestro objetivo consiste en obtener resultados positivos que satisfagan las necesidades de nuestras partes interesadas, y nos comprometemos a actuar siempre de forma responsable y transparente, velando por los intereses de las personas que nos confían la gestión de sus inversiones.