Regional Financial Cooperation and Regional Financial Arrangements

In the aftermath of World War II, the meeting at Bretton Woods led to the creation of multilateral institutions with the purpose of promoting international economic cooperation. The World Bank and the International Monetary Fund (IMF) were part of this effort. As the global financial system changed, the IMF and the World Bank adapted to new challenges and evolved to constitute key pillars of the global financial system. While capital flows became increasingly voluminous and volatile under financial globalization, emerging market economies (EMEs) in particular were vulnerably exposed to the free flow of liquidity in financial markets. This led to currency and settlement mismatches that raised awareness on the need for redesigning the institutions to better address the vulnerabilities faced by EMEs.

In response to shortcomings of the IMF and World Bank, a multitude of new regional financial arrangements for liquidity provision and long-term development have emerged, most notably since the Asian Financial Crisis.

A new book chapter by Yaechan Lee and William N. Kring in the Handbook of Regional Cooperation and Integration explores the landscape of regional institutions and places them within the context of both regional cooperation efforts and global economic governance. Regional financial cooperation encompasses various efforts by clusters of states within a region or subregion to cooperate on issues related to long-run development financing, the provision of liquidity for financial stability and macroeconomic cooperation.

The chapter presents how regional financial cooperation is conceptualized, maps regional financial cooperation worldwide and discusses the effectiveness of these regional cooperative schemes. The authors conclude that there are clear signs of development in regional financial cooperation efforts.