Currency and Contest in East Asia: The Great Power Politics of Financial Regionalism

Currency and Contest in East Asia

Author(s): William W. Grimes

ISBN:          9780801446894

Publisher: Cornell University Press

Year:          2009

Price:         $39,95

Reviewed by Salvador Santino Regilme Jr. , Universität Osnabrück, Germany

Apart from the European Union (E.U) and the United States (U.S.), Japan remains to be one of the most powerful economic actors in the global political economy today – notwithstanding the perception that national states are becoming irrelevant amidst increasing economic globalization (Drezner, 2007). The economic renaissance of Japan after the Second World War, attributable also to the political and economic sponsorship of U.S., has also paved the way for the former’s ascendancy to exert its financial and political interests across the Asia-Pacific region. This includes, for instance, the sustained leadership of Japan in the Asian Development Bank – among many other economic, developmental, and financial projects of the country in key Southeast Asian nation-states. Of equal import is on how such regional leadership is, by default, assumed by Japan also has to be dovetailed with the rise of the East Asian tigers such as Hong Kong, Singapore, Taiwan, and South Korea. To a certain extent, this string of successes was also reflected with the miracle stories of Malaysia and Thailand, albeit to a lesser degree of success compared to their Northeast Asian peers. But all these years of strongly-upheld congratulatory narratives of the East Asian economic model slowly melted when the Asian Financial Crisis occurred in 1997-1998. The key regional cooperation initiatives from the period thereafter is one of the most important investigative points for scholars of international political economy (IPE) with a focus on Asia.
Such historical backdrop, according to William W. Grimes in his book Currency and Contest in East Asia, should be fully considered in examining the complexity of history and prospects of financial regionalism in East Asia. More specifically, he commences with a rigorous analytical historicizing by positing that Japan asserts unprecedentedly its regional hegemonic leadership, so to speak. This transpired with the goal of lessening the vulnerabilities posed by unfettered global financial markets through a region-wide reform of the financial architecture in the Asia-Pacific. In doing so, Japan spearheaded several projects such as emergency funding to crisis-ridden economies, pushing for the creation of local-currency bond markets, and advocating for a better coordination of currency policies among states. Being the “richest and most technologically advanced economy” in the region, Japan, according to Grimes, leads in managing a region with a notable “lack of close, stable relations”; this makes a strong case for the former to assume leadership in “financial regionalism by acting as a balanced and intermediary” (p. 7-8). The push for building financial regional institutions in the region, as argued by Grimes, should  be done by prioritizing also the inclusion of China into the regional and global economic system, as well as implementing “responsible regulatory and macroeconomic policies in order to prevent transmission of financial crises or price instability” (p.7).
The book utilizes a realist political economy approach in order to forecast the ways in which great power politics and interests will impact the dynamics of regional cooperation. More particularly, the establishment of regional cooperation initiatives must be broadly situated within a cobweb of geopolitical interests that primarily involve Japan, China, and the United States. Grimes rightly argues that Japan, at least in the foreseeable future, will continue to lead in any kind of region-wide security and economic initiatives due to its unmatched “power of the purse” as well as its influence in global and regional institutions (p.8). Needless to say, financial cooperation will be a focal point where Japan can try to balance, together with the U.S., any potential threats that may arise as a result of the apparent shift of global political gravity to the Pacific as a result of China’s stellar economic renaissance.
The book is empirically-rich in terms of uncovering the dynamics of regional financial cooperation in the Asia-Pacific, with an analytical focus on Japan and great power politics considerations. Apart from the 1997 regional crisis, much of the financial regionalism – which includes “emergency liquidity provision, local-currency bond market development, regional surveillance, and currency cooperation” (p.69) – was largely borne also out of the need to better facilitate the role of the region in the global production networks, with the U.S., Asia-Pacific, and Europe as being involved. An insight worth noting here is that Japan’s push for financial cooperation, operating under the broader dynamics of financial globalization, is critical in hollowing out China in adopting liberal and inclusivist-oriented rules of economic behavior, in the hope that such path is the best way to promote the broader interests of the region. To put it candidly, this consideration must be taken seriously, before China becomes extremely powerful to the extent that it can just easily bypass the rules of a liberal economic system.
The ultimate strength of this work is its ability to provide new vistas in viewing the emergence of various regional economic cooperation initiatives in the post-Asian financial crisis era, and more importantly, in the context of China as an emerging global power. One of the most fearless and provoking insight from Grimes, using his realist theoretical approach, is on how there is a substantial incentive for China and Japan (p. 210) to “disengage from the dollar system” as a reaction from looming current account deficits of the U.S. that consequently result to the costs being shouldered by countries with substantial dollar reserves. This, in my view, is a prophetic argument in which the future of research in international political economy (IPE) should seriously look into. Is this an imminent proscenium of a massive paradigmatic and structural change in a U.S.-led global financial system? Only the Owl of Minerva will tell, nonetheless. But, what is far more important is that William Grimes, as a leading mainstream realist IPE scholar with a focus on Asia-Pacific, has raised the tempo of the debate by alluding, albeit indirectly, to the imminent change that the global financial system is about to witness in the years or decades to come.
Notwithstanding the rich empirical analysis in Currency and Contest in East Asia, there are  key considerations on why a realist framework alone may not suffice in providing a more nuanced understanding of the future trajectory of “great power politics” in the region. Grimes dismisses the constructivists’ argument about regional cooperation in the region which claims that these developments can be compared analogously with the historical trajectory of the European Union. In other words, Grimes argues for the implausibility of the emergence of an East Asian regional cooperation to the extent of European integration. This is because, accordingly, of the absence of a “dominant power” in the region and the sheer existence of “collective incentive to navigate among the shoals of interested outside powers” (p.116). Apart from these, the highly distinctive cluster of interests between the two dominant actors in the region – Japan and China – means that the regional integration project seems to be untenable. True enough, such characterization of the current state-of-affairs are quite acceptable, if only realpolitik is to be solely considered.   But the failure of such argumentation from Grimes lies on his sheer parsimonious analysis of materialist power-oriented considerations in the region. In other words, there is a richer menu of variables at play in which Grimes refuses to acknowledge. The ongoing regional institutional developments in the region are quite promising. The past few years have witnessed the dramatic shift of economic gravity of trading transactions of individual countries in the Asia-Pacific from the U.S. to China. Moreover, through the assistance of the E.U., the ASEAN has been undergoing several institutional-building and regional identity formation in order to foster regional stability (Regilme, 2011). Of course, the pace of regional integration in Europe should not, understandably, a reasonable benchmark for a much more nuanced global political environment in which the ASEAN is situated in. Although there could be long-standing political disagreements between China and Japan, which Grimes argues to be the main hindrance for further regional integration, disagreements alone are not enough to outweigh the benefits of cooperation between these two countries in fulfilling their normative duties to lead the region. The classic case of the troubled historical past between Germany and France did not prevent the two from investing their political energies in the creation of an economic union among European countries. Most importantly, notwithstanding how the West may portray how China’s resurrection as a global power as a threat, most of the key countries in the Asia-Pacific appear to have a very favorable attitude towards China as an economic partner and as future economic power (Jacques, 2009). These countries include the following: Japan (65%); South Korea (75%), Malaysia (40%), and Australia (42%).  It will only be a matter of time before Pacific Asia realizes that the future of a successful regional economic integration lies on further cooperation with China and Japan, and this naturally applies also to these two regional hegemons.
Conclusively, Currency and Contest in East Asia, notwithstanding the analytical limitations of its use of a realist approach, is a tour de force. It is one of the most serious empirically-grounded studies on the future prospects of Pacific Asia amidst the most transformative periods of modern-day global political economy. I suspect that this will be a classic reading in the IPE scholarship on Asia-Pacific.
Drezner, D. W. (2007). All Politics Is Global: Explaining International Regulatory Regimes (p. 254). Princeton, NJ: Princeton University Press.
Jacques, M. (2009). When China Rules the World: The End of the Western World and the Birth of a New Global Order. New York: Penguin Press.
Regilme, S. S. F. (2011). The Chimera of Europe’s Normative Power in East Asia: A Constructivist Analysis. Central European Journal of International and Security Studies, 5(1), 69-90.