Robert Triffin and the search for Asian Monetary Union

Author(s): Ivo Maes, Ilaria Pasotti

Date published: Apr 2022

SUERF Policy Brief, No 316

by Ivo Maes (Université catholique de Louvain & ICHEC Brussels Management School) and Ilaria Pasotti (Intesa Sanpaolo Group Historical Archives)1

JEL codes: A11, B22, B31, E30, E50, F02, F32.
Keywords: Triffin, Bretton Woods, international liquidity, regional monetary integration, Asian Payments Union.

Download: SUERF Policy Brief, No 316 (0.4 MB)

Especially with the Asian financial crisis of 1997-1998, Asian countries have advocated a profound reform of the international financial architecture. Their proposals focused on two main axes: a reform of the global financial system and stronger regional monetary integration in Asia. There are here significant parallels with the ideas of Robert Triffin (1911-1993). Triffin became famous with trenchant analyses of the vulnerabilities of the international monetary system (the “Triffin dilemma”) and advanced also proposals for reforming the international monetary system. In his plans for regional monetary integration, very much inspired by his experience with the European Payments Union, Triffin focused on the creation of a Reserve Fund and a single currency unit. However, notwithstanding certain advances, monetary integration remained more limited in Asia than in Europe.

Robert Triffin: Bretton Woods Cassandra and advocate of regional monetary integration

Robert Triffin (1911-1993) was one of the main protagonists in the international monetary debates in the postwar period (Maes with Pasotti 2021). He became famous with his book Gold and the Dollar Crisis, published in 1960, in which he predicted the end of the Bretton Woods system. With his well-known dilemma, Triffin stressed the vulnerability of an international monetary system which was dependent on a national currency for its international liquidity (Maes 2013). Moreover, for Triffin, the US balance of payments deficit was not only an economic issue but also a moral one. He was disgusted that the richest country in the world was financed by the poorer countries. Very much like Keynes, he was in favor of a true international reserve currency.

In his aim to reform the international monetary system, Triffin pursued a two-pronged strategy. Ideally, he favored a global reform aiming at the creation of an international currency and a world central bank. But, as he doubted the success of this project, he also developed proposals for regional monetary integration, particularly in Europe. Triffin’s plans for regional integration were very much based on his experience with the European Payments Union (1950), and focused on the creation of a European Reserve Fund and a European currency unit (Maes and Pasotti 2018). Later, he was also involved in proposals for regional monetary integration in Latin America, Africa and Asia. In Triffin’s eyes, these regional and worldwide approaches were complementary, aiming at a new multipolar international monetary system. In this note the focus is on Asia. Triffin elaborated most of his proposals for Asian monetary integration in the late 1960s and early 1970s as a consultant to the United Nations Economic Commission for Asia and the Far East (ECAFE) (Maes and Pasotti 2022). Key elements of these proposals were a clearing mechanism, credit facilities and a new currency unit, which Triffin proposed to call the “Asian” (Triffin 1967). There are interesting parallels with recent Asian proposals. Especially since the Asian financial crisis of 1997, Asian countries have advocated a profound reform of the international financial architecture (Kawai 2009). Their proposals focused on two main axes: a reform of the global financial system and stronger regional monetary integration in Asia, very much the Triffin approach.

Asian monetary union?

Triffin’s proposals for regional monetary integration were debated by the ECAFE countries in the 1960s and 1970s when several initiatives at regional integration in Asia were taken. Triffin was very influential in these debates. His ideas figured prominently in an official “Foundation Paper on Regional Payments Arrangements for ECAFE Countries” by Kenichi Odawara2 and he was tasked, together with Pierre Uri, with a follow-up mission to explore the positions of the different countries concerning Asian payments arrangements in the Spring and Summer of 1970. Triffin’s proposals were the topic of high-level conferences in Japan, then the crucial country in Asia and where Triffin had an impressive network3. Triffin is also mentioned in a short (three page) official history of ECAFE (Jolly, 2009). Following these debates, in 1974, the Asian Clearing Union was created. However, its membership was very limited with initially six members, mainly from Western Asian countries: Bangladesh, India, Iran, Nepal, Pakistan and Sri Lanka. In 1977 the five founding members of ASEAN (the Association of Southeast Asian Countries, then comprising Indonesia, Malaysia, the Philippines, Singapore, and Thailand) signed the ASEAN Swap Arrangement that was considered as the embryo of an Asian regional safety net arrangement (Rhee et al., 2013); yet it has been criticised as being insufficient during the Asian crisis.

Asian monetary union came really on the agenda with the Asian financial crisis of 1997. As observed by Tharman Shanmugaratnam in his Per Jacobsson Lecture, Asian monetary union was very much “a metaphor for Asia wanting to manage its own affairs” (Shanmugaratnam, 2006: 3). There was a stringent criticism in Asia of the role the IMF played during the crisis. The perception in Asia was that the IMF, very much under US influence, did not provide enough bridge finance to countries in difficulty and overemphasized moral hazard arguments and structural reforms, in strong contrast with the Mexican crisis of 1994 (Lipscy, 2003)4. In a broader sense, it led to a discomfort with the “Washington consensus”, especially the destabilizing role which capital movements could have (quite similar to arguments made earlier by Triffin, see Maes with Pasotti 2021). Asian policymakers, very much like Triffin, pursued a two-pronged strategy: reform of the global monetary system (especially giving Asia more influence in its governance) and regional monetary initiatives.

Why was monetary integration in Asia more limited than in Europe?

However, regional monetary integration in Asia remained more limited than in Europe. When comparing monetary integration in Europe and Asia, one should also observe that not much progress was made in Europe in the 1970s. EMU became an official aim of the European Community with the 1969 Hague Summit.5 However, the implementation of the 1970 Werner Report was not successful, partly because of heavy international monetary storms in the 1970s and the breakdown of the Bretton Woods system. European monetary union really made progress from the end of the 1980s with the Delors Report and the Maastricht Treaty, leading to the introduction of the euro in 1999.

A question is then why monetary and economic integration in Europe advanced more than in Asia. A key factor is that the heterogeneity between countries, both from an economic and political perspective, was much greater in Asia than in Europe. Moreover, the situation in Asia was quite complex. Several countries in the region had only recently become independent and were very wary about “colonialism”, while in many places there was also resentment against Japan due to the occupations during World War Two. At the end of his mission with Triffin, Uri remarked in a report that the situation in Asia was much more complicated than in Europe6. He singled out three main factors: the China situation (for Uri the least important factor; at the time, “China” was represented by Taiwan), the situation in Indochina (the war in Vietnam with extensions in Laos and Cambodia); and the tense relation between India and Pakistan. Moreover, Nixon’s closing of the gold window in August 1971 was completely unexpected in Japan (the “Nixon shock”). After the breakdown of Bretton Woods, the Japanese yen went through massive swings, making it less attractive as an anchor country. In these years, Japan was, economically, completely dominant in Asia and more preoccupied with its global role and its relation with the United States, its most important trading partner.

An important similarity between Asia and Europe is that both Japan and Germany, the main creditor countries in their respective region, were reluctant towards a process of monetary integration. Both countries feared close integration with debtor countries. However, in Europe, at the heart of the process of European integration was the Franco-German motor. Inside Germany, economic policymakers were often deeply skeptical about plans for European monetary integration, but at crucial moments the chancellors made a choice for European integration, often because of the Franco-German relation (Maes 2004). In Asia, such a crucial axis driving the integration process, seems to have been absent.

References

Jolly R. (2009), From Ecafe to Escap, UN Intellectual History Project-Briefing Note no. 20, November 2009, 3 pp.

Kawai M. (2009), Reform of the International Financial Architecture: An Asian Perspective, ADBI Working Paper No 167.

Lipscy P. (2003), "Japan’s Asian Monetary Fund Proposal", in Stanford Journal of East Asian Affairs, vol. 3, no. 1, Spring 2003: 93-104.

Maes I. (2004), "On the Origins of the Franco-German EMU Controversies", European Journal of Law and Economics, Vol. 17, No. 1, January: 21-39.

Maes I. (2013), "On the Origins of the Triffin Dilemma." European Journal of the History of Economic Thought 20, no. 6: 1222-1250.

Maes I. and Pasotti I. (2018), “The European Payments Union and the Origins of Triffin’s Regional Approach towards International Monetary Integration.” History of Political Economy 50, no. 1 (March): 155–190.

Maes I. with Pasotti I. (2021), Robert Triffin: A Life, Preface by Jacques de Larosière, Oxford: Oxford University Press.

Maes I. and Pasotti I. (2022), Robert Triffin, Japan and the quest for Asian Monetary Union, Working Paper Research Series, No. 405, NBB, February 2022, pp. 39

Rhee C., Sumulong L., Vallée S. (2013), Global and Regional Financial Safety Nets: Lessons from Europe and Asia, Bruegel Working Paper no. 6, November 2013.

Shanmugaratnam T. (2006), Asian Monetary Integration: Will It Ever Happen?, The Per Jacobsson Lecture, Singapore, September 17, 2006.

Triffin R. (1960), Gold and the Dollar Crisis. The Future of Convertibility. New Haven, CT: Yale University Press.

Triffin R. (1967), "Payments Arrangements within the ECAFE Region", Report and Recommendations of the Seminar on Financial Aspects of Trade Expansion, United Nations Economic Commission for Asia and the Far East Economic Commission for Asia and the Far East, Bangkok, Thailand, August 1967: 127-187.