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A Proposal for a New Regional Financial Arrangement: The Reserve Liquidity Line

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  • Park, Young-Joon

    (Ajou University, Department of Economics)

Abstract

This paper examines the limitations of the Chiang Mai Initiative Multilateralization (CMIM) as a regional financial safety net in East Asia, and proposes a new regional financial arrangement. To overcome the drawbacks of the CMIM, which has never been activated so far, a new regional financial arrangement suggests that ASEAN 3 members establish a regional reserve system based on a supranational regional reserve asset. The new regional financial arrangement, so-called "Reserve Liquidity Line" (RLL), guarantees a degree of automaticity in liquidity facility, based on upfront funding instead of pledge funding. As a backdrop of the regional reserve system, some market movements have been manifested to reduce excessive U.S. dollar dependency in East Asia and to enhance the use of local currencies. Establishing the RLL mechanism could find a way of making up for the weak points of the CMIM and responding to the regional needs for effective regional financial arrangements. The proposed operational mechanism of RLL comprises (i) institution building of ASEAN 3 Reserves System (ARS) to manage the Regional Reserves Asset (RRA), (ii) an Operations Account and a Substitution Account, and (iii) a sort of basket exchange rate for RRA valuation.

Suggested Citation

  • Park, Young-Joon, 2014. "A Proposal for a New Regional Financial Arrangement: The Reserve Liquidity Line," Staff Papers 14-6, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepsp:2014_006
    DOI: 10.2139/ssrn.2773336
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    Keywords

    Regional Financial Arrangements; CMIM; ASEAN 3;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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