Institutions to Promote Financial Stability: Reflections on East Asia and an Asian Monetary Fund

Over the past decade, East Asia has developed a range of forums and institutions for regional policy cooperation. One idea that has been, and continues to be, discussed is a possible Asian Monetary Fund (AMF). This paper looks at some issues about the design of an AMF. It does not argue the merits of such an institution; ultimately, judgment on the merits of an AMF will be a pragmatic decision made with an open mind on a specific proposal. The paper puts the debate about an AMF in context by examining East Asia's recent experience with regional financial cooperation and international financial institutions and forums. It reviews the literature on what makes for a 'good' institution - one that embodies the preferences of its owners and can achieve its aims under stress and changing circumstances - and explores some general implications for the design of a regional monetary fund. It then sets out ways in which the responsibilities and organisation of an AMF can be designed in practice to ensure that the institution, if set up, maximises the likelihood of its success. For a regional fund to secure regional stability, it would need effective and independent surveillance and policy dialogue processes, as well as strong enforcement and accountability mechanisms. To reflect East Asia's preference for quick decision-making, minimal bureaucracy and political control, it would likely need to be structured as a secretariat providing independent expert analysis and advice, with the final decision made by finance ministry deputies acting under direction from ministers.