East Asia is witnessing the emergence of an informal monetary system which focuses on self-insurance, through its own reserve accumulation, and co-insurance, through swaps. The former is concentrated in a small number of large countries (China, Japan and Korea), while the latter involves informal monetary cooperation among monetary authorities in a large number of countries. The origins of this system lie in the Asian financial crises, and reflect concerns both to avoid repetition of similar events and any spread of further crises through contagion effects. This paper first characterizes and documents this emerging system, describing how it works and what its objectives are, and then discusses its performance, its incompleteness, and assesses the system's ability to move towards deeper integration without adopting a single monetary authority as well as the impediments it faces. What is clear is that this type of system among individual countries is incomplete and falls well short of complete monetary integration, but at present it performs well even if it experiences a number of deficiencies. Most countries seem better off with partial reserve pooling, while incremental gains from higher degrees of pooling in the region tend to be small.
Regional Monetary Arrangements in ASEAN+3 as Insurance through Reserve Accumulation and Swaps
Working Paper #22