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

• DOI: http://doi.org/10.1111/aepr.12218
• Published date: 01 July 2018
• Author: Jong‐Wha Lee
• Date: 01 July 2018

Comment on “Changing International Financial

Architecture: Growing Chinese Influence?”

Jong-Wha LEE†

Korea University

JEL codes: F36, F55, G15, O53

Accepted: 1 March 2018

Ito (2018) aims to provide an overview of the evolution of international financial architec-

ture 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 strengthen-

ing 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 confi-

dent 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 relat-

ing to both international financial architecture and the power balance between differ-

ent 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 weak-

nesses. 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 sys-

tems, 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 man-

agement and macroprudential oversight), but still need to continue to amend financial vul-

nerabilities 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-borderfinancial panic calls for

cooperation among neighboring economies. Asian economies must strengthen their

†Correspondence: Jong-Wha Lee, Economics Department, Korea University, 145 Anam-ro,

Seongbuk-gu, Seoul, 02841, Korea. Email: jongwha@korea.ac.kr

© 2018 Japan Center for Economic Research 215

doi: 10.1111/aepr.12218 Asian Economic Policy Review (2018) 13, 215–216