Member Benefits, Incentives and Oversight Mechanisms of the East Asian Reserve Fund: Problems and Solutions

　　Abstract: The East Asian Reserve Fund fundamentally represents the multilateralization of the CMI. As the CMI becomes multilateral, one outcome will be that not all members receive the same allocation of benefits. The fund faces a number of problems though. First, considering the relative regional influence of the members and the distribution of benefits the fund offers, it is clear that Japan and China obtain only limited benefits and have few incentives to be involved in the Fund. This is especially so as the level of financial integration between the members is less than that between members and some nonmember states. This means that there are little incentives for the Fund to respond quickly to a crisis on the part of an individual member. As such, it is critical that the oversight mechanism for the East Asian Reserve Fund be enhanced to make this a credible and effective system. In order for the East Asia Reserve Fund to become a stable, effective and operational institution, the members will need to deepen collective efforts. This paper offers an analysis of the relative operational benefits available to the different members of the East Asia Reserve Fund as well as incentives for participation in the fund and of the corresponding oversight mechanism. On the basis of this it presents policy proposals for the development of the fund and a strategy for China’s involvement.

　　Author: Yang Quan is an Associate Professor in the Department of International Economy and Trade of the School of Economics of Xiamen University