The Summit has laid a foundation for reforming the international financial markets.
Readers may be aware of the five principles for reform of global financial markets agreed at the G20 Summit on Financial Markets and the World Economy held in Washington, DC on 15 November 2008:
- Strengthening transparency and accountability
- Enhancing sound regulation
- Promoting integrity in financial markets
- Reinforcing international cooperation
- Reforming international financial institutions
These are important principles, even if they sound rather general in the light of the severity of the current global financial crisis. The Summit has also agreed on an Action Plan to implement these five principles. The Action Plan is more detailed, outlining immediate (for completion by 31 March 2009) and medium-term actions to be taken by national and regional authorities, international financial institutions, standard-setting bodies and financial firms.
Nothing in the Plan, however, came as a surprise to us in the HKMA. We have been following closely and indeed participating actively in international discussions on the necessary reforms to the global financial system. The monetary and financial stability of Hong Kong, being a free and open international financial centre of significant size and liquidity, is liable to be affected by developments in global finance. I have said before that the task of maintaining monetary and financial stability is probably more challenging in Hong Kong than in other jurisdictions considering the size and openness of our financial market. We therefore welcome the Action Plan and look forward to contributing to the redoubled international efforts to reform the global financial system.
A preliminary study of the Action Plan indicates that most of the immediate actions to be taken by national and regional authorities have already been taken in Hong Kong. For those that require working with our counterparts in other jurisdictions, we will be in touch with them through the established channels of co-operation. There are supervisory practices in Hong Kong such as measures to mitigate pro-cyclicality and arrangements to ensure that banks continue to maintain adequate capital to sustain confidence that we can usefully share with others. I am sure there are also practices elsewhere that we may find useful in Hong Kong. Another issue that needs to be discussed is the cross-border harmonisation of temporary measures that were introduced during the crisis to support the financial systems.
In the proposals to reform the international financial institutions, much focus is placed on the International Monetary Fund (IMF) and the Financial Stability Forum (FSF). Although Hong Kong is not a member of the IMF, we maintain close contacts with them through China's membership and through the IMF resident office in Hong Kong, which conducts macro-financial surveillance of the region. Readers may also be aware of the annual Article IV consultation conducted by the IMF, which consistently gives very favourable reports on Hong Kong. I also had the privilege in the past of being a member of an expert team to give advice on how best the IMF could conduct its work on financial markets. The IMF, with its focus on surveillance, works closely with the FSF, of which the HKMA is a member. The FSF was established after the Asian financial crisis and it focuses on standard-setting. We have been actively involved in its work and will continue to try our best to assist in its deliberations on the immediate and medium-term actions to be taken. Indeed, the FSF will be holding a regional outreach meeting in Hong Kong in the middle of December and I am sure there will be lively discussions on the Action Plan, particularly on expanding the membership of the forum to include the emerging economies.
There is a lot of work to do to reform the international financial system and many lessons to be learnt from this global financial crisis.
Joseph Yam
27 November 2008
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