The euro crisis has highlighted the problems of the undertaking of an ambitious regional monetary integration project with only limited economic policy cooperation backing it up. We thus ask what lessons regional monetary cooperation schemes in other world regions can draw from this experience? This paper identifies three aspects as being crucial for the Euro crisis: first, the need for fiscal cooperation, including the enforcement of sovereign state insolvency; second, the need for a mechanism to extend lender of last resort facilities to solvent yet illiquid sovereign member states; and, third, the need for prudent financial regulation at the supranational level. Against this background, the paper analyzes monetary cooperation schemes in Latin America and Southeast Asia, namely the Latin American Reserve Fund and the Chiang Mai Initiative Multilateralization, together with the Asian Bond Markets Initiative. While the euro zone faces the alternatives of either deepening or breaking up, the study reveals that the cooperation schemes in Latin America and Southeast Asia – while less ambitious in scope – show surprisingly stable institutional settings, despite little economic policy coordination underpinning them. However, the euro experience shows that the need for more extensive economic policy coordination increases as financial integration becomes more profound.

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New Financial Reforms and Their Effects on Emerging Asia

Regional Monetary Cooperation: Lessons from the Euro Crisis for Developing Areas?

The paper defines financial liberalization, distinguishing between liberalization of domestic financial markets and capital account convertibility. It then examines the stages and the strategy of Indian financial reform. The Indian strategy followed a well thought out sequence whereby full capital account liberalization was to come after deepening domestic markets, and improving government finances. One alone is dangerous without the others. The experience of the global crisis has validated the Indian strategy and also shown that foreign entry has benefits but cannot resolve all issues. Deepening domestic markets and better domestic and international regulation is a necessary prerequisite for full convertibility. The direction of future liberalization should be such as meets Indian needs of financial inclusion, infrastructure finance, and domestic market deepening.

The Future of Financial Liberalization in South Asia

This paper overviews financial liberalization in three South Asian countries — Bangladesh, India and Pakistan — in order to derive lessons for future reforms. It investigates how freeing domestic financial markets, improving capital account convertibility, and restructuring regulations have impacted the process of financial liberalization in South Asia. The paper shows that the capital account was most liberalized in Pakistan, and that Bangladesh had the least market development of the three countries under consideration. The study also reveals that of the two similar-sized countries (i.e. Bangladesh and Pakistan), Pakistan had experienced several financial crises that had required “external rescue”. Bangladesh, in contrast, needed external rescue only once. India did better than Pakistan and Bangladesh, most likely because it followed a strategic plan according to which full capital account liberalization followed the deepening of domestic markets and improvements to government finances. The experience of the global crisis validated the Indian strategy and demonstrated that foreign entry, while beneficial, cannot resolve all issues. We conclude that deepening domestic markets and better domestic and international regulation are necessary prerequisites for full convertibility, and that these preconditions will be best met if future liberalization is adapted to domestic needs such as financial inclusion, infrastructure finance, and market deepening.

/pdf/the-future-of-financial-liberalization-in-south-asia-1eksy05vtm.pdf

The Future of financial liberalization in South Asia

/pdf/new-financial-reforms-and-their-effects-on-emerging-asia-ahbxpmq3d3.pdf

New Financial Reforms and Their Effects on Emerging Asia

Citations

Regional Monetary Cooperation: Lessons from the Euro Crisis for Developing Areas?

The Future of Financial Liberalization in South Asia

The Future of financial liberalization in South Asia

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