Asian Financial Safety Net
On Nov. 3, The Bank of Korea Governor Lee Ju-yeol participated in the Future of Asian Finance Conference co-hosted by The Bank of Korea and the International Monetary Fund (IMF) at the Lotte Hotel in Sogong-dong, Seoul. “The current situation of the international financial market filled with volatility risks is a big challenge and opportunity for emerging Asian countries,” he remarked at the opening speech, adding, “As such, highly important is financial integration between Asian countries, which will be a boon to financing and risk sharing.”
He mentioned the high reliance on off-shore financing and slower-than-expected development of the region’s financial sector as two of the main causes for the current instability of the financial and foreign exchange markets in Asia. According to him, the close trade relations among Asian countries have played an important role for the Asian economy to become a main pillar of the international economy, yet the countries have been rather slow to integrate their financial markets. The intra trade in the Asian region accounts for over 50 percent of the total, but the bond investment among Asian countries is limited to 13 percent or so now.
“In order to accelerate financial integration, we have to try to prevent financial instability and risks in some countries from spreading to others,” he explained, continuing, “Also, we need to come up with macroeconomic and microeconomic policy for a stronger financial restoring force, while providing regulations that can serve for market stability.”
He also emphasized the importance of bilateral and multilateral financial safety nets, mentioning Korea’s currency swaps with China, Indonesia, and Australia as examples. “We are paying keen attention to the potential impact of Japan’s additional quantitative easing on the Korean economy and financial sector,” he added.
The Bank of Japan decided on Oct. 31 to increase its liquidity supply by 1 to 2 trillion yen (US$8.7 to $17.6 billion). Under the circumstances, the value of the assets purchased by the Japanese government is expected to increase to 8 to 9 trillion yen (US$70 to $79 billion).