Since the Asian Financial Crisis of 1997, Asian economies have been highly preoccupied with the stability of the regional financial system. To a large extent this preoccupation has prompted an increase in foreign currency reserves, or the “savings glut," in many Asian states that ultimately funded the consumer habits of the United States. However, increased reserves alone cannot guarantee stability. Consequently, in 1997 the Association Southeast Asian Nations (ASEAN) plus China, Japan, and South Korea launched the Chiang Mai Initiative, which set up several bilateral currency swaps to increase the liquidity of the system and prevent the dual mismatches of loan maturity and currency denomination that contributed to the collapse of the Thai baht, Indonesian rupiah, and South Korean won. With the most recent global financial crisis, the Asian region has once again turned its attention the security and stability of its regional financial system.

Efforts Toward Stability and Leadership

Japan, fearful of losing its regional prominence to the juggernaut that is China, has taken the lead in fortifying the existing financial institutions to prevent a repeat of the 1997 events. In May 2009, Japan and China both increased their contributions to the Chiang Mai Initiative by $38.4 billion. Japan, however, then offered an additional ¥6000 billion (approximately $61 billion) in assistance to countries affected by the recent global financial crisis. Early in July 2009 Japan and Indonesia arranged for a precautionary currency swap should the crisis have a profound impact on the Indonesian economy, though both governments claim that the swap is strictly a precautionary measure and that there is no immediate intention to make use of the arrangement.

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