Whenever you are looking to trade currency, it’s imperative that you understand the history and the way international banks and currencies operate. While the IMF and international banks have a large influence, the Chiang Mai Initiative creates a buffer of currency to ensure the smooth running and operation of industry and trade in Asian region. This currency swap agreement is named due to the location of the original dealings between the countries in Chiang Mai, Thailand where the initiative was made to ensure that there is a buffer reserve of currency to support the Asian area in times of economic trouble. Launched in March of 2010, the initiative currently houses approximately $240 billion after a recent agreement between countries has expanded the pool.
The Birth Of Asian Economic Stability
The Chiang Mai Initiative was put together by the Association of South East Asian Nations (ASEAN) at one of their general meetings in Thailand. By uniting pools of currency reserves, the purpose was to ease uncertainty in tough markets and fight against currency speculation and build on the work done by organizations such as the International Monetary Fund (IMF) in terms of international support. Anyone who was trading in 1997 realizes the devastation that happened during the Asian Financial Crisis and this initiative was endorsed by the World Bank chairman that visited the nations and agree to back any initiative made by the currency banks of the ASEAN.
What does the Chiang Mai Initiative do?
How it works is that countries are able to swap their own local country into dollars to help balance the influence and power of markets and international currency. Funded mainly by the power house countries of China and Japan, many have called into question the amount of power that these two countries are able to exercise over smaller countries that are part of the deal, such as Laos and Vietnam. However the Chiang Mai Initiative has done nothing but improve the economy in the region, with an effective early warning system and making currency trade in the Asian Market lucrative again for traders. It forms a safeguard for international investors and allows the smaller currencies to thrive under difficult conditions, protecting the market.
After its initial funding of $78 billion, the Chiang Mai Initiative re-convened 2 years later in March of this year and increased its complete threshold for the second time with a total pool of $240 Billion, doubling up from previous thresholds. Stability has returned to the Asian market, with China becoming the major powerhouse in the global company in the last 4 years and Japan cementing its position and with more global monetary dealings such as the Chiang Mai Initiative in regions, currency trading becomes less risky and global investment and economies will continue to expand and improve.