The Chiang Mai Initiative (CMIM), a financial stability framework for the Asian region, is expected to be funded similarly to the International Monetary Fund (IMF). This is a measure considering the higher likelihood of recognition of paid-in capital as foreign reserves. If the paid-in capital is recognized as foreign reserves, it will be regarded internationally as "immediately available funds," thereby enhancing the CMIM's actual crisis response capability.
CMIM is a multilateral currency swap facility with a size of $240 billion that involves the ASEAN+3 framework. It was initiated to prevent a recurrence of a foreign exchange crisis at the ASEAN+3 (Korea, Japan, China) summit in 1997 and was officially launched in March 2010.
◇ South Korea accelerates funding... plans additional consultations with IMF
Lee Chang Yong, governor of the Bank of Korea, attended the "25th Korea-Japan-China Finance Ministers and Central Bank Governors Meeting" and the "28th ASEAN+3 Finance Ministers and Central Bank Governors Meeting" held on the 4th (local time) in Milan, Italy.
The Korea-Japan-China meetings have been held annually to review the main agenda of the ASEAN+3 meetings and discuss economic and financial cooperation among Korea, Japan, and China. The ASEAN+3 meetings, which consist of 10 Southeast Asian nations as well as Korea, Japan, and China, have been held annually since 1999.
During this meeting, member countries agreed to push for the ‘paid-in capital method,’ which is currently being discussed as a new financing structure for CMIM, to be modeled after the IMF type.
A Bank of Korea official noted, "So far, models such as the IMF type and the European Stability Mechanism (ESM) type have been discussed for the paid-in capital method," adding, "The agreement on the IMF type takes into consideration the high likelihood of the paid-in capital being recognized as foreign reserves."
Until now, CMIM has been based on swap contracts that rely on agreements among member countries for financing, making it difficult for actual support to occur when funding is needed. In fact, there have been no instances of funding support since CMIM was launched.
Since last year, South Korea has begun leading the funding of CMIM. By converting the financing method to a paid-in capital method, the balance sheets of member states and CMIM can be separated, reducing the political and credit risk burdens on funding countries. For countries requesting funds, the uncertainty of receiving benefits will decrease, thereby enhancing CMIM's effectiveness.
Regarding the transition to the paid-in capital method, the Bank of Korea and the Central Bank of Malaysia established a technical working committee (TWC) as co-chairs. Finance ministers and central bank governors from member countries instructed work on core issues, including governance, necessary for transitioning to a paid-in capital method based on the IMF type model.
Governor Lee Chang Yong emphasized, "The achievements so far will contribute to strengthening the credibility of CMIM," stating that we must advance the funding of CMIM through a step-by-step approach, including specific model agreements among member countries and additional consultations with the IMF.
◇ New rapid financing program established... yen and yuan also eligible
In addition, the ASEAN+3 countries agreed at this meeting to establish a Rapid Financing Facility (RFF) and amend the CMIM agreement to expand the currencies used in the RFF to include eligible freely usable currencies (FUC). The amendment to the agreement will come into effect once all member nations sign the amended agreement following this agreement.
The RFF is a small-scale, short-term funding support program provided without preconditions or postconditions to address crises caused by temporary external shocks such as natural disasters. The FUC includes dollars, euros, yen, yuan, pounds, etc., but currently, only the dollar can be freely provided within the CMIM framework. In the future, the scope of eligible currency provision is expected to expand to include yen and yuan.
Member countries agreed to assess whether the newly established RFF operates smoothly through a simulation exercise this year. They also shared the view that it is necessary to further enhance the macroeconomic surveillance capabilities of the ASEAN Macroeconomic Research Office (AMRO) for regional financial stability. AMRO is an international organization established in 2011 to support economic and financial stability for member countries.
Meanwhile, the 26th Korea-Japan-China Finance Ministers and Central Bank Governors Meeting scheduled for next year will be hosted by South Korea, while the 29th ASEAN+3 Finance Ministers and Central Bank Governors Meeting will be hosted by Japan and the Philippines in Samarkand, Uzbekistan.