Although the fund marks a step up for economic cooperation in East Asia, the region still has a long way to go toward building a vibrant and healthy financial market, Finance Minister Xie Xuren said in a statement.

China has spared no effort in extending financial assistance to needy countries in the region and will continue to be a firm advocate of East Asian financial integration, he added.

As part of its commitment to regional economic integration, China has been pushing to establish a China-ASEAN free trade area, as well as encouraging more cooperation on bond markets and currencies.

Economists say the fund will also help diversify the use of some Asian countries' massive forex reserves, which have far more than what these countries need to cover their short-term debts and stabilize their currencies. China alone had amassed nearly $2 trillion in foreign exchange reserves by the end of 2008. The bulk of it, however, is parked in low-yielding U.S. treasury bonds, stoking complaints about low returns and a lack of diversity. The weakness of the U.S. dollar in recent years has further added to the concerns. Analysts believe the liquidity pool will provide emergency insurance to financially distressed economies in the region and at the same time take some pressure off the region's management of idle reserves.

A challenge to the IMF?

As the Asian emergency fund comes under the global spotlight, speculation is swirling-will it overlap with the International Monetary Fund (IMF), which has the same functions, or even marginalize the global fund in Asia?

This idea is not unfounded. The IMF itself had been financially strapped before receiving a boost from the G20 countries this April and now faces a complete restructuring to improve the representation of emerging economies. The painful memories of the 1997 financial crisis may have also made Asian countries less willing to seek help from a global fund dominated by the United States and Europe. In return for its financial bailouts 10 years ago, the IMF imposed harsh economic and social policies on a number of Asian borrowers, including fiscal retrenchment that worsened their economic troubles. In recent years, no Asian country except Pakistan has turned to the IMF for financing aid.

"The IMF provided too little money with too many strings attached, which hurt its credibility as a reliable rescuer in the region," said Zhao Changhui of the China EXIM Bank.

In the wake of the 1997 financial crisis, Asia learned that it must depend on itself during downturns. Ten years of growth have rendered the region more able to erect its own safeguards against any crisis, he added.

Xie Xuren played down the idea of the fund as a challenger to the IMF. The East Asian forex fund will be an effective complement to existing global financial institutions and an important part of the world's financial system, he said. It also represents an innovative approach to improving and reforming the global financial landscape, he added.

Hurdles ahead

Although there is no doubt that the fund will generate a measure of common good, a handful of uncertainties still linger over its viability and growth prospects. The huge economic and social gulfs within the ASEAN-Plus-Three mechanism may undermine its ability to find a community response to emergencies. For example, Singapore, the richest country in the region, has a per-capita GDP 150 times that of Myanmar, the poorest.

The member nations of the fund are at different stages in developing their financial markets and regulations, He Fan, Associate Director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said in a statement. They also have sharp differences in their economic preoccupations amid the downturn.

Moreover, the lack of a powerful rule enforcer in the fund may hinder the timely arrangement of financing when a crisis strikes, he added.

Zhuang Jian, a senior economist with the ADB, added that the participating countries have yet to add flesh to the bones of the fund, including appropriately defining an emergency that allows use of the financing and making clear the repayment terms for borrowers. Details about its organization and financial management will determine how effectively it can ensure regional financial security, he said.

However, it enjoys greater flexibility in negotiations between the participants compared with the IMF, which is based on an annual conference, he said.

Xie Xuren also stressed that vigorous efforts are still needed to establish and improve the forex fund as the crisis creates new challenges for the region.

"In the next step, we should further enrich regional cooperation in various forms to edge closer toward economic integration," he said.