Financial cooperation in East Asia has received less scholarly attention than that in the field of trade. This relative neglect is unfortunate for several reasons. Financial cooperation, even at a shallow level, often imposes more constraints on governments than trade agreements do, especially the heavily circumscribed preferential trade agreements (PTAs) that countries in the region have negotiated over the last decade. Other things being equal, one would expect concerted government action in finance to be more difficult to achieve. In the last few years, however, East Asian governments have made more progress in cooperation on finance than they have in trade: moreover, financial collaboration has been on a genuinely region-wide (ASEAN Plus Three) basis, whereas many of the PTAs have been negotiated with countries from outside Asia and no progress has been made on an East Asian trade agreement.

The work of William Grimes, together with that of Jennifer Amyx and Randall Henning, has contributed most to our understanding of the political economy of East Asian financial cooperation. In this major new book, Grimes reviews the three major spheres in which East Asian governments have collaborated in the years since the financial crises of 1997/98: bilateral currency swap arrangements (the Chiang Mai Initiative [CMI]); currency management; and bond market initiatives. These, he argues (p. 4), are the principal areas where East Asian governments have pursued policies intended to reduce their vulnerability to crisis, and to enhance their prospects for development by strengthening domestic markets and regional self-help institutions.

Grimes explores these East Asian cases through the lenses of three major theoretical approaches to regional cooperation: realism; neo-liberal institutionalism; and constructivism. He makes his preference for a realist approach to political economy clear from the outset of the book. Drawing on the work of Jonathan Kirshner (Currency and Coercion, 1995), Grimes (p. 24) argues that states can exploit monetary systems to achieve foreign policy goals through three principal means: currency manipulation; monetary dependence; and systemic disruption.

He examines the potential for and desire of East Asian countries to employ these means by looking at the preferences of the major actors on three issues: insulation (especially from U.S. abuse of its “exorbitant privileges” in the global financial system); liberalization of domestic financial systems; and acceptance or rejection of the global role of the U.S. dollar and more generally of the U.S. hegemonic role in the global financial system. His overall argument is that whereas all East Asian states share a desire to insulate their economies from U.S. unilateralism in the financial sphere, their preferences diverge on issues of liberalization and on the future role of the dollar. In particular, most of the other members of the ASEAN Plus Three grouping do not share Japan's enthusiasm for rapid liberalization of their domestic financial systems or for locking the region into global standards. Grimes convincingly depicts the central dilemmas faced by the Japanese government. First, how it can reconcile its desire to reduce its vulnerability to U.S. financial unilateralism with its ongoing security dependence on the U.S. Second, its understanding that greater East Asian financial autonomy will in the medium term almost certainly increase China's power in the region.

The second chapter of the book examines the development of East Asia as a region, covering inter-governmental collaboration in finance and in trade, and the increasing regionalization of production. This relatively short overview offers an excellent introduction to the literature on East Asian regionalism. Grimes then turns to the three areas of financial cooperation, devoting a chapter each to currency swaps, currency cooperation, and the bond market initiatives. Appropriately, most attention is given to the Chiang Mai Initiative, the flagship project of the ASEAN Plus Three grouping. In the overview chapter, as well as each of the three case studies, Grimes presents the material from a realist political economy perspective and then addresses how it might be interpreted from a neo-institutionalist or a constructivist perspective.

The CMI was the most prominent outcome in terms of regional collaboration of the financial crises that severely jolted East Asia in 1997/98. A direct descendant of the Japanese finance ministry's abortive proposal for an East Asian Monetary Fund, the CMI initially established limited bilateral swap agreements among the ASEAN Plus Three countries. Grimes does a superb job in detailing the challenges and tensions that have accompanied the development of the CMI—how to avoid creating moral hazard when providing additional liquidity at times of crisis to the member economies; what relationship the CMI should have with the IMF and with global standards; and how to develop mechanisms of surveillance and enforcement. The CMI, Grimes notes, does have one unusual dimension: it is an area where the interests of China and Japan frequently overlap because both countries are the likely major sources of liquidity for the scheme.

Progress in inter-governmental collaboration on currencies and bond markets has been far more limited. Indeed, in discussing currencies, the task facing Grimes is less a matter of documenting substantive collaboration than of detailing the sources of disagreement between the two major players, China and Japan. Japan's attempts to push for an Asian currency unit, which have come both from its Ministries of Finance and Trade, and from the Asian Development Bank, which the Japanese government continues to dominate, have gone nowhere. This lack of agreement has not been surprising given that the yen is over-weighted in the proposed currency baskets. The most thought-provoking part of the chapter is the discussion of the interests that China and Japan have in moving away from a financial system dominated by the U.S. dollar. The bond market initiatives, meanwhile, have been useful learning experiences for the participating governments. But from the perspective of collaboration at the regional level, the outcomes have been trivial, providing Grimes with little to analyse.

As with all manuscripts on aspects of finance delivered to publishers in early 2008 this one suffers from unfortunate timing. In the second half of 2008, Korea and Singapore both suffered liquidity crises triggered by a drop in foreign exchange earnings caused by the recession in their major markets. Rather than seek emergency liquidity funding from the CMI, they instead relied on bilateral swap arrangements with the U.S. Federal Reserve. This non-use of the CMI in precisely those circumstances for which it was designed prompted ASEAN Plus Three Finance Ministers to finalize an agreement to multilateralize the arrangement, that is, to turn it into a self-managed common reserve pool. If fully implemented, these new mechanisms will produce a major deepening of financial cooperation in Asia. At the time of writing, agreement has been reached on voting rights within the new arrangement, and negotiations are under way for a regional surveillance mechanism that could facilitate a weakening of the link to the IMF—developments that Grimes (p. 94) predicted would be unlikely in the short term.

The book's other principal limitation is self-inflicted. The discussion throughout is very Japan-centric. Grimes is correct in arguing that Japan currently is uniquely placed to provide leadership on financial cooperation in East Asia, given the yen's role as a reserve currency. And the Japanese government has been the most important actor in this field over the last decade. But, as Grimes acknowledges, the balance of financial power is shifting rapidly within the region, with the talk now being of internationalization of the RMB rather than of the yen. In this context, the heavy reliance by Grimes on Japanese sources, even to the extent of using these for information about the views of other governments in the region, is problematic.

Overall, however, this book is a very valuable contribution to our understanding of East Asian regionalism. Grimes has provided a useful framework for examining regional financial cooperation and defends it effectively against other interpretations—although no doubt those investigating these developments from alternative theoretical perspectives will not find it completely persuasive.