Monash University Malaysia economics professor Niaz Asadullah said the “Asian Century” is the talk of the town today.

“The contrasting fortunes and new global realities have created much optimism over an alternative (international) financial order,” Niaz told FMT Business.

“There is a visible shift in the epicentre of the global economy from the North Atlantic towards East Asia, and the fast post-pandemic recovery of Asian emerging markets vis-a-vis contracting western economies.”

However, beyond China’s sustained post-pandemic recovery, he said, Asian leaders needed to close political ranks and talk Japan into the initiative for the proposal to be effective.

He was commenting on the call by Prime Minister Anwar Ibrahim to set up an Asian Monetary Fund, akin to the International Monetary Fund (IMF), during his official visit to China last week.

Anwar said China is open to talks with Malaysia on forming the AMF, amid the world’s growing impatience with the US dollar’s dominance. “There is no reason for Malaysia to continue depending on the dollar,” he said.

A new financial world order?

Founded at the Bretton Woods conference in 1944 at the end of World War II, the IMF and World Bank Group are two central institutions that underpin the US’ dominance in the global financial system.

The World Bank works with developing countries to reduce poverty and increase shared prosperity, while the IMF serves to stabilise the international monetary system and acts as “monitor of the world’s currencies”.

However, critics claim the IMF and the World Bank are institutions that operate at the behest of the US that seeks to maintain its hegemonic position as the world’s sole superpower, both militarily, and financially via the US dollar.

There is growing unease around the world that the US is abusing its predominant position by imposing unilateral sanctions on its adversaries like Russia, China, Iran and Venezuela. Case in point is the seizing of Russia’s foreign currency reserves in the wake of the Russo-Ukrainian war early last year.

Niaz pointed out that Anwar’s proposal is not new as he made a similar call during his first stint as finance minister in the 1990s.

“The AMF was first proposed by the Japanese to facilitate quick recovery from the Asian financial crisis, but given the US political hegemony and control over the IMF, the proposal did not materialise then.

“This time it’s different, and a lot has changed in the last 25 years. The power rivalry between China and the US has undermined the US’ vision of a unipolar world,” he said.

He said compared to the US in the 1990s, China today enjoys much stronger trade ties with the Asean economies. Unlike the IMF or the US, “China doesn’t impose harsh conditionalities for lending purposes”.

“Anwar is keen to leverage these emerging tectonic shifts in regional power configurations.

“He seems convinced that this time round, the major Asian nations will overcome the problem of dealing with US pressure, and form a pan-Asian political coalition in support of the AMF.”

Essential to get Asian governments’ buy-in

Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams concurs that an Asian Monetary Fund can be established.

“It requires buy-in from many Asian countries, particularly to finance it and then to agree on the terms on which access to that finance is made available.

“It is not just a financial issue but a geopolitical issue, too,” he said.

Another related issue is the increasing use of bilateral currencies to finance trade and investment between countries rather than using the US dollar as the primary trade currency.

“This is also feasible and is becoming increasingly popular as changes in such arrangements are showing,” Williams said, adding that most commodities are priced and traded in US dollars.

However, the direct sale of oil between Russia and China, as well as India, is circumventing that arrangement as these countries ditch the use of the greenback. Even Malaysia is exploring the possibility of trade with other nations via their respective currencies.

“There is an increasing probability that this will extend to more countries and more commodities,” he said.

Lastly, the geopolitical implications of an Asian Monetary Fund and how it will affect relationships between countries like Malaysia, the US and its allies have wide implications.

“Many countries are questioning whether the dollar’s dominance is beneficial to them, and whether better exchange arrangements could be found,” Williams said.

“New arrangements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which now includes the UK, show there are shifts in global economic arrangements which do not necessarily rely on the US or other developed economies like the European Union.”

Not a done deal

However, Universiti Malaya economics professor Nazari Ismail begs to differ, stating that the establishment of the AMF is unlikely in the near future.

“There is no currency at the moment that is in a position to replace the US dollar as the world’s reserve currency,” Nazari said, adding that even China keeps its international reserves in dollars.

Pacific Research Center of Malaysia principal adviser Oh Ei Sun said the setting up of an AMF is a realistic possibility, and can start with converting the tremendous Malaysia-China trade volume into a renminbi-denominated one.

“It can happen provided one pre-condition is met – that the renminbi can be freely traded internationally whenever supply and demand dictates, especially into and out of China.

“Otherwise, traders would still prefer the free-flowing US dollar,” he said.