Leaving the Nest: The Rise of Regional Financial Arrangements and the Future of Global Governance

Abstract

This article examines the impact of regional financial arrangements (RFAs) on the global liquidity regime. It argues that the design of RFAs could potentially alter the global regime, whether by strengthening it and making it more coherent or by decentring the International Monetary Fund (IMF) and destabilizing it. To determine possible outcomes, this analysis deploys a ‘middle‐up’ approach that focuses on the institutional design of these RFAs. It first draws on the rational design of institutions framework to identify the internal characteristics of RFAs that are most relevant to their capabilities and capacities. It then applies these insights to the interactions of RFAs with the IMF, building on Aggarwal's (1998) concept of ‘nested’ versus ‘parallel’ institutions, to create an analytical lens through which to assess the nature and sustainability of nested linkages. Through an analysis of the Chiang Mai Initiative Multilateralization (CMIM) and the Latin American Reserve Fund (FLAR), the article demonstrates the usefulness of this lens. It concludes by considering three circumstances in which fault lines created by these RFAs’ institutional design could be activated, permitting an institution to ‘leave the nest’, including changing intentions of principals, creation of parallel capabilities and facilities, and failure of the global regime to address regional needs in a crisis.

Legitimacy challenges to the liberal world order: Evidence from United Nations speeches, 1970–2018

“…For most states, exit—or deliberate absence—from the liberal international order is not a realistic option, even less so since socialist models disappeared as alternatives (e.g., Gruber 2000 ; Milanović 2019 ). The IMF has an effective monopoly as lender of last resort (Lipscy 2016 ), and alternative arrangements—like the Chiang Mai swap agreement—are small and access usually hinges on a parallel IMF program (Kring and Grimes 2019 ). Only a few states could realistically use Preferential Trade Agreements to create market access equivalent to that provided by the WTO.…”

Financial Safety Nets in East Asia and Europe: A Political Economy Assessment

“…International Monetary Fund (IMF)), other global institutions, Regional Safety Nets (i.e. the European Stability Mechanism and the Chiang Mai Initiative) and bilateral arrangements (especially bilateral swap lines among foreigner central banks) exist together and try to find a consistent framework (Krings and Grimes, 2019;Rana, 2017;McKay et al, 2011).…”

“…The creation of the Chiang Mai Initiative, ASEAN Plus Three Macroeconomic Research Office (AMRO) and their developments in the last decades represent a topic of interest for economists (Mühlich and Fritz, 2018;Rana, 2017;Kwai, 2015;Capannelli, 2011) and political scientists (Krings and Grimes, 2019;Grimes, 2011;Katada, 2009). Previous studies have focused especially on the reactions to the crisis of the CMIM financial safety net, the limits of the initiative itself, its possible future evolution taking into account the increasing importance of the AMRO, and the relationships with the International Monetary Fund (Krings and Grimes, 2019;Mühlich and Fritz, 2018;Rana, 2017;Kwai, 2015;McKay et al, 2011). Currently, there exists no studies that have focused on assessing the voting powers of the different countries from a quantitative methodological perspective.…”

“…Currently, there exists no studies that have focused on assessing the voting powers of the different countries from a quantitative methodological perspective. There are only a few general considerations of the topic, especially on discussions related to the power of China and Japan within the Initiative (Krings and Grimes, 2019;Kwai, 2015).…”

“…There exists a large body of literature about the comparison of regional safety nets. However, previous works have mainly focused on the different tools and the amount of funds available (McKay et al, 2011), eventual relations with the IMF (Krings and Grimes, 2019;Mühlich and Fritz, 2018;Rana, 2017;McKay et al, 2011) and timing in delivering liquidities (Fritz and Mühlich, 2019;Mühlich and Fritz, 2018;McKay et al, 2011). Even though certain studies have also compared the different governance and decision-making systems, they have normally focalised only on the asymmetry of the economic sizes of the members (Fritz and Mühlich, 2019;Mühlich and Fritz, 2018), and the problem of impartiality that is derived from the presence (or not) of a veto power or a well understood dominance (Rana, 2017; McKay et al, 1 A regional safety net (also known as a regional financing arrangement or RFA) can be defined, following McKay et al (2011), as an arrangement among a group of countries that rely each other to a mutual financial support system in case of balance of payments problems 1 .…”