- Financial Action Task Force (FATF) is an inter-governmental agency working to set standards and promote the effective implementation of measures against money laundering, terrorist financing, and threats to the international financial system.
- FATF comprises 37 member jurisdictions and 2 regional organizations, including the European Commission and Gulf Cooperation Council (GCC).
- India is a member of FATF, and its aim is to generate political will for national legislative and regulatory reforms in combating financial threats.
Chiang Mai Initiative (CMI):
- The Chiang Mai Initiative (CMI) is a multilateral currency pooling arrangement among the ten members of the Association of Southeast Asian Nations (ASEAN), China (including Hong Kong), Japan, and South Korea.
- Launched in 2010, CMI draws from a foreign exchange reserves pool worth USD 240 billion.
- It aims to enhance financial stability and support the countries involved during times of crisis by providing a regional financial safety net.
These initiatives and memberships showcase India’s active participation in global financial mechanisms, contributing to stability and cooperation in the international economic landscape.
Chiang Mai Initiative (CMI):
The Chiang Mai Initiative (CMI) is a regional multilateral currency pooling arrangement involving the following members:
- ASEAN (Association of Southeast Asian Nations) countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
- East Asian countries: People’s Republic of China (including Hong Kong), Japan, and South Korea.
Key Points:
- Objective: The initiative was launched in 2010 with the primary objective of managing regional short-term liquidity problems. It aims to provide a regional financial safety net to address economic and financial challenges within the participating countries.
- Foreign Exchange Reserves Pool: CMI draws from a foreign exchange reserves pool with a total worth of USD 240 billion. Member countries contribute to this pool to build a collective financial resource that can be utilized when needed.
- Post-1997 Asian Financial Crisis: The initiative was established in response to the 1997 Asian Financial Crisis, which had a significant impact on the economies of the region. The goal was to enhance regional financial stability and reduce dependency on external financial assistance.
- Complementary to International Financial Arrangements: CMI is designed to complement the work of other international financial arrangements and organizations, such as the International Monetary Fund (IMF). It provides an additional layer of financial support within the region.
- Preventive Measure: While CMI has not been activated since its establishment, it serves as a preventive measure, ensuring that the region has mechanisms in place to address potential financial crises promptly.
- Regional Cooperation: The initiative reflects the commitment of regional countries to foster economic and financial cooperation. It is part of broader efforts to strengthen regional integration and resilience to external economic shocks.
In summary, the Chiang Mai Initiative is a collaborative effort among East Asian and ASEAN countries to enhance regional financial stability by creating a pooled reserve that can be accessed during times of crisis. Although it has not been utilized, its existence contributes to confidence and stability in the region.
FAQs
1. What is the Financial Action Task Force (FATF)?
- Answer: The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system.
2. What is the role of FATF in combating financial crimes?
- Answer: FATF sets international standards and recommendations for combating money laundering and terrorist financing. It conducts assessments of countries’ compliance with these standards, identifies deficiencies, and works with jurisdictions to address them through policy reforms and capacity-building measures.
3. How does FATF evaluate countries’ compliance with its standards?
- Answer: FATF conducts mutual evaluations, during which teams of experts assess a country’s legal and regulatory framework, enforcement mechanisms, and implementation of measures to combat money laundering and terrorist financing. Countries are rated based on their level of compliance and effectiveness in addressing financial crime risks.
4. What are the consequences of non-compliance with FATF standards?
- Answer: Non-compliance with FATF standards can result in reputational damage, financial isolation, and increased scrutiny from the international community. In severe cases, FATF can issue public statements identifying jurisdictions with strategic deficiencies and impose countermeasures, such as enhanced due diligence requirements or restrictions on financial transactions.
5. How does FATF adapt to emerging threats in the financial sector?
- Answer: FATF regularly reviews and updates its standards and guidance to address evolving risks, such as virtual currencies, cybercrime, and proliferation financing. It also collaborates with other international organizations and private sector stakeholders to share information, develop best practices, and strengthen the global response to financial crime challenges.
In case you still have your doubts, contact us on 9811333901.
For UPSC Prelims Resources, Click here
For Daily Updates and Study Material:
Join our Telegram Channel – Edukemy for IAS
- 1. Learn through Videos – here
- 2. Be Exam Ready by Practicing Daily MCQs – here
- 3. Daily Newsletter – Get all your Current Affairs Covered – here
- 4. Mains Answer Writing Practice – here
