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The global economic crisis has prompted the creation of an Asia crisis fund, designed to bulk up and eventually supplant the Chiang Mai Initiative.

China, Japan and South Korea, along with the Association of Southeast Asian Nations (ASEAN), agreed Oct. 24 to set up an $80 billion rainy day fund for the region. The three biggest Asian economies will contribute 80 percent of the fund, or $64 billion, while ASEAN proper (constituting Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) will pitch in the other $16 billion. The funds are expected to be in place by June 2009, and will be available to provide financial assistance to troubled countries and institutions. Along with the fund, ASEAN+3 has proposed to establish a global financial monitoring group for the region.

The details of the projected Asia crisis fund are not at all clear, and ASEAN+3 likely does not know what the final shape of the institution will be. Nevertheless, it is clear that the fund is meant to expand on and eventually supplant the Chiang Mai Initiative (CMI), agreed upon by the same group of countries in 2000 after the smoke had cleared from the Asian financial crisis of 1997-98 and countries began setting up regional self-help mechanisms in case disaster struck again. The CMI consisted of 16 agreements between eight countries to conduct bilateral currency swaps in order to bolster each other’s currencies. This complex system of swaps was intended to prevent currencies from getting sucked down an abyss, as the Thai bhat did in 1997, if investors vanished overnight.

ASEAN+3 is bulking up the CMI because now it can afford to do so. Since the Asian financial crisis in the late 1990s, almost every Asian economy has built up foreign currency reserves via yearly trade surpluses. China’s reserve is worth $1.9 trillion, Japan’s $970 billion and South Korea’s $258 billion. Other players, from Hong Kong and Taiwan to Singapore, Malaysia and Thailand, each have hefty funds in the hundreds of billions, amounting to anywhere between 40 and 80 percent of their GDPs. While the Western world is parched for liquidity, Asia is flooded with it — and not all of this wealth is bound up in European and American securities. Some of it is free and uncommitted, and looking for a home.