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

• Author: Chalongphob Sussangkarn
• Date: 01 July 2018
• Published date: 01 July 2018
• DOI: http://doi.org/10.1111/aepr.12219

Comment on “Changing International

Financial Architecture: Growing Chinese

Influence?”

Chalongphob SUSSANGKARN†

Thailand Development Research Institute

JEL codes: F31, F32, F33, F34, F36, F37, F38, F55, G15, O11, O40

Accepted: 12 March 2018

Over the past three to four decades, Asian economies have grown rapidly, increasing

their share of world gross domestic product (GDP). The two most populous countries

in the world are also in Asia; so the economic gravity is shifting toward Asia and many

view the current century as Asia’s century. Ito (2018) highlights these developments

and relates them to the evolving international financial architecture (IFA), particularly

the main Bretton Woods institutions, indicating that while Asia’sinfluence in these

institutions has increased, the increase has been “behind the curve,”lagging behind the

growth of Asia’s economic footprint. Ito also discusses the Asian financial crisis, the

global financial crisis and the Euro zone crisis. These crises have pushed Asian econo-

mies to strengthen self-protection policies, including reserves accumulation, and to

develop regional surveillance and liquidity support mechanisms, such as the ASEAN

plus 3 Macroeconomic Research Office (AMRO) and the Chiang Mai Initiative Multi-

lateralization (CMIM). The global financial crisis and Euro zone crisis have also illus-

trated the need for Asia to pursue its own direction rather than simply follow models

from the Western economies, which were regarded as best practices in the past, but

have proven to be highly flawed. Finally, Ito suggests that the evolution of Asia’s own

regional financial architecture, while beneficial, may not be so smooth given potential

political conflicts among major countries in the region on various issues.

I think Ito’s paper provides a very good coverage of the key issues, and I agree gener-

ally with the main arguments in the paper. My comments will focus on Asia’s footprint,

particularly China’s, in relation to the IFA. While China is likely to become the country

with the largest GDP size within the next decade, GDP size alone does not translate

directly to importance within the IFA. How financial transactions are conducted globally,

particularly the currencies used for international finance, are key components of the IFA,

and on this, the US$ is still king and will likely remain so for a long time. Under the Bret-

ton Woods system, the US$ was made the global reserve currency, convertible to gold,

underlining postwar US dominance. This led to the dominance of the US$ for interna-

tional transactions and as a reserve currency. Even after the Nixon shock that ended

†Correspondence: Chalongphob Sussangkarn, Thailand Development Research Institute, 565 Soi

Ramkhamhaeng 39,Wangthonglang District, Bangkok10310, Thailand. Email: chalongp@tdri.or.th

© 2018 Japan Center for Economic Research 217

doi: 10.1111/aepr.12219 Asian Economic Policy Review (2018) 13, 217–218