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Monetary co-operation among east Asian countries : FS

The Financial Secretary, Mr. Donald Tsang, said today (Wednesday) that the region must work together for monetary co-operation so as to maintain currency stability, and to meet the challenge of volatility of capital flows.

Speaking at the World Economic Forum 1996 Europe/East Asia Economic Summit, Mr. Tsang said monetary co-operation was not an end in itself, but a means to the end of greater prosperity and stability in the Region.

He noted that Asia had high growth, high savings, strong fiscal discipline and over 40 per cent of the world's official reserves.

"Yet, in the wake of the Mexico crisis, we felt the ripples. The lesson we can draw is that no modern economy can totally shield itself from the vibrations of large external shocks," Mr. Tsang said.

He pointed out that with greater financial deregulation, innovation and globalisation in financial markets, capital flows had become increasingly rapid and volatile.

Mr. Tsang said how this volatility of capital flows could be dealt with was one of the policy challenges.

"If somehow we could make Asian financial intermediation more efficient. whereby we can apply greater Asian savings to finance Asian investments at lower risks. Asian economies would become far less reliant on fund flows from outside the region and thus less vulnerable to external shocks," he said.

Policy response in Hong Kong to the challenges came at the domestic and regional levels, according to Mr. Tsang.

"At the domestic level, Hong Kong is adhering to sound macro economic policies and tight fiscal discipline to produce robust economic fundamentals that would attract capital inflows and yet would not be over-dependent on them," he said.

"We are endeavouring to develop the local debt market and to install a resilient and efficient financial infrastructure." Mr Tsang added.

At the regional level, Mr Tsang said there was greater cross border co-operation in the management of currency market stability via the signing of US dollar bilateral repurchase agreements. Steps were also being taken to enhance the effective intermediation of savings and investments by improving the infrastructure of the regional capital markets.