Abstract
While Asia now serves as a provider of savings to the global economy, such savings are managed by US and European financial institutions through their financial markets. Asia should thus become a financial centre by developing its own markets and financial institutions.
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Notes
These figures may be slightly exaggerated since the IMF's World Economic Outlook (WEO) uses PPP for weighting. In the latest WEO, however, the IMF noted that for the first time the contribution of China to global economic growth turned out to become the highest even measured by current exchange rates.
When the Japanese government proposed establishing an Asian Monetary Fund in 1997, it envisaged a fund of about $100bn. Now, seven Asian countries have more than $100bn reserves, and China's reserves have already exceeded $1tn.
Persaud et al. (2005) provides an in-depth discussion on the level and use of Asian foreign exchange reserves.
The author derived the numerical illustration based on one in Krugman (1998).
Eichengreen and Hausmann (1999) first used the term ‘original sin’.
The sub-prime problem should be considered a typical example of the Panglossian trap described in the section Asian crisis and crony capitalism. For investors, high ratings for sub-prime-related securities reflecting the low default ratio in the booming economy served as an implicit guarantee. On the other hand, the non-recourse nature of housing loans provided borrowers with an embedded put option in the event of foreclosure, that is, sub-prime borrowers could gamble on the housing price bubble without worrying about whether it bursts or not.
Part of the title of Greenspan (2007).
See Ma and McCauley (2002). Fukao (2003) also describes Japan's similar experience when the country liberalised capital controls.
See Ito (2003) for a proposal of basket currency bonds.
EMEAP is a forum of 11 central banks established in 1991. See footnote 12 and the EMEAP website http://www.emeap.org/. Ma and Remolona (2005) provide a good overview of the ABF.
The Bank of Japan, for example, published a paper to that effect (see Bank of Japan, 2003).
The Mexican crisis of 1994, which spread to Asia, served as a trigger for strengthening cooperation. A proposal for an ‘Asian BIS’ by the Governor of the Reserve Bank of Australia (see Fraser, 1995) was a symbol of such a movement. In fact, EMEAP, which had been only an annual executive director level meeting, established a regular governors meeting and three working groups in 1996. On the other hand, BIS, which had been considered as an institution of major central banks, particularly of European countries, extended membership to emerging markets, including many Asian central banks, and in 1998 established a representative office for Asia and the Pacific in Hong Kong SAR.
One example would be Islamic banking that is beginning to proliferate in some Asian countries. While some principles of Islamic banking, such as the prohibition of interest rates, seem to be quite different from those of ordinary banking, it also has a sophisticated risk-sharing scheme similar to financial derivatives. As such, the risk profile of Islamic banking is quite complicated, which would pose various interesting questions (eg how to treat it in the context of capital adequacy standards).
References
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Views expressed are those of the author and not necessarily those of Shinko Securities.
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1has been the senior adviser of Shinko Securities Co., Tokyo, Japan since 2006. He worked for the Bank of Japan, the BIS in Hong Kong as Chief Representative in Asia and the Pacific as well as in Basel as Senior Adviser until 2006. As a regular member he attended various international fora on international finance such as the BIS Euro Currency Standing Committee, EMEAP Working Group on Central Banking Operation, and G10 Deputies Working Group. He has an MBA in Finance (1978), University of Pennsylvania, Wharton School.
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Yoshikuni, S. Asia as a financial centre — Opportunities and obstacles. J Asset Manag 9, 80–89 (2008). https://doi.org/10.1057/jam.2008.10
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DOI: https://doi.org/10.1057/jam.2008.10