Comment on “Changing International Financial Architecture: Growing Chinese Influence?”

Abstract

Ito (2018) aims to provide an overview of the evolution of international financial architecture by focusing on the role and influence of Asia, especially China. Ito argues that the international financial architecture is becoming fragmented as a result of Asia strengthening its own regional institutions, and claims China will rise to become "the third polar," after the US and Euro Zone. He also points out that Asian countries became more confident in their crisis prevention mechanisms after experiencing the Asian Financial Crisis (AFC), the Global Financial Crisis (GFC), and the European sovereign debt crisis.Ito provides useful information and many stimulating arguments. In particular, he summarizes succinctly how the three major crises have influenced Asian thinking relating to both international financial architecture and the power balance between different regions and countries. Many Asian governments became more skeptical of the role of the International Monetary Fund during the AFC and the GFC, and built their own preventive measures to avoid future crises.The GFC demonstrated that the downside costs of financial and trade globalization were magnified in those economies where the external positions and financial systems had weaknesses. However, most Asian economies were relatively resilient during the GFC, compared with the AFC. Ito (2018) points out that many Asian countries became more confident in their ability to prevent contagion to their countries by managing capital outflows and became more skeptical of the virtues of US free-market capitalism. Further discussion is needed to explain how much the reforms implemented by Asian economies after the two crises have contributed to improving the soundness and resilience of their financial markets and systems, and how helpful they will be to prevent a future crisis. Some papers argue that the Asian governments managed the GFC with improved policies (for example, flexible exchange rate system) and better crisis management and resolution mechanisms (e.g. capital flow management and macroprudential oversight), but still need to continue to amend financial vulnerabilities and improve macroeconomic and financial policy frameworks. For example, Lee (2017a) discusses the Korean experiences and reforms during the AFC and the GFC.The necessity of dealing with crises resulting from cross-border financial panic calls for cooperation among neighboring economies. Asian economies must strengthen their †Correspondence: Jong-Wha Lee,

Changing Global Financial and Trading Systems and Asia: Editors’ Overview

“…While acknowledging the need for cooperation among economies to deal with crises that have resulted from cross‐border financial panels and the progress that has been made in regional cooperation in this area, Jong‐Wha Lee () asserts that regional cooperation in Asia had been weakened by a number of factors including regional rivalry for hegemony and diversity in economic power. He also questions the accuracy of Ito’s long‐term predictions for GDP and GDP per capita suggesting the methodology Ito adopts is too simplistic.…”