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

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  • William N. Kring
  • William W. Grimes

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.

Suggested Citation

  • William N. Kring & William W. Grimes, 2019. "Leaving the Nest: The Rise of Regional Financial Arrangements and the Future of Global Governance," Development and Change, International Institute of Social Studies, vol. 50(1), pages 72-95, January.
    • Handle: RePEc:bla:devchg:v:50:y:2019:i:1:p:72-95
    DOI: 10.1111/dech.12471
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    References listed on IDEAS

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    1. Alexander Kentikelenis & Erik Voeten, 2021. "Legitimacy challenges to the liberal world order: Evidence from United Nations speeches, 1970–2018," The Review of International Organizations, Springer, vol. 16(4), pages 721-754, October.
    2. Adela Toscano-Valle & Antonio Sianes & Francisco Santos-Carrillo & Luis A. Fernández-Portillo, 2022. "Can the Rational Design of International Institutions Solve Cooperation Problems? Insights from a Systematic Literature Review," Sustainability, MDPI, vol. 14(13), pages 1-22, June.
    3. Luca Alfieri & Nino Kokashvili, 2020. "Financial Safety Nets In East Asia And Europe: A Political Economy Assessment," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 121, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    4. Bernhard Reinsberg & Thomas Stubbs & Alexander Kentikelenis, 2022. "Compliance, defiance, and the dependency trap: International Monetary Fund program interruptions and their impact on capital markets," Regulation & Governance, John Wiley & Sons, vol. 16(4), pages 1022-1041, October.
    5. Kevin P. Gallagher & Haihong Gao & William N. Kring & José A. Ocampo & Ulrich Volz, 2021. "Safety First: Expanding the Global Financial Safety Net in Response to COVID‐19," Global Policy, London School of Economics and Political Science, vol. 12(1), pages 140-148, February.

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