Good Morning,
It is a great pleasure for me to open the 2003 Australasian
Macroeconomics Workshop and to welcome all of you to Hong Kong. I
understand that this is the eighth time the workshop is being held,
and that it is the first time you are meeting outside of Australia
and New Zealand. I am delighted that you have chosen Hong Kong. We
are now, I hope, entering a period of optimism for our city after a
very tough few months, and there are continuing structural
adjustments in Hong Kong arising from the economic integration with
the Mainland, which is growing rapidly, bringing challenges as well
as opportunities: it is a very interesting time to see Hong
Kong.
It may surprise you that the HKIMR decided to follow the
splendid precedent set by the Reserve Bank of New Zealand in 2002
and host this year's workshop. But it should not be too much of a
surprise. Rather than giving a traditional lecture this morning,
let me explain to you why, as Chairman of the Board of the HKIMR, I
feel that conferences such as this are so important. But I should
first say this: while the HKIMR was established by the HKMA, its
Council of Advisors, of which I am not a member, determines its
programme of activities. It therefore enjoys professional
independence. Thus, I was not a party to the Council's deliberation
of, and its decision to support, Professor Crosby's proposal to
hold the Workshop here. But I am very pleased that the Council of
Advisors decided to do so.
I will start from the observation that Hong Kong's economy -
like many Asian economies - is a small ship in a big ocean. While
the weather today may be placid, the winds can pick up without
warning and the waves can be forbidding. You all know about the
series of massive speculative capital flows that Asian economies,
and even Australia and New Zealand, were exposed to during the
Asian financial crisis, and how Hong Kong finally rode out that
storm. In times such as those, policymakers naturally ask what is
the right course to steer, what are the right policies to follow.
One policy is clear - to ensure that the boat is as seaworthy as
possible. This, of course, we have sought to do. Following the
Asian financial crisis we took a large number of measures to
improve the functioning of the currency board, and the efficiency
of the financial infrastructure in Hong Kong more broadly. We also
continue to monitor and improve our system of banking supervision,
in recognition of the fact that one reason we did ride out the
Asian financial crisis was undoubtedly that banks were strong.
Some observers have suggested throwing some sand in the wheels
of international finance. By limiting capital flows, the argument
goes, it becomes easier for central banks to maintain monetary and
financial stability in turbulent times and to cope with the potency
of international finance that comes with globalisation. Indeed,
control in one form or another has become quite popular in this
region. But, for an international financial centre such as Hong
Kong, whose main source of income stems from an ever-growing
economic and financial integration with the rest of the world
economy, such a policy is, to us, clearly undesirable. Moreover,
the Basic Law of Hong Kong also bars any foreign exchange control
policies and any restrictions on the free flow of capital within,
into and out of Hong Kong.
Others suggest that the Hong Kong economy would be better able
to withstand economic shocks and disturbances if the currency board
was adjusted or gave way to something else: different observers
have different pet ideas and there seems to be no agreement on what
that alternative would be. I have spoken a great many times on this
topic and I do not propose to do so again today. Let me just say
that I remain convinced that the currency board has remained a
fundamental source of stability for Hong Kong in the 239 months of
its existence since it came into being in October 1983.
What else can be done to ensure monetary and financial stability
not just in Hong Kong, but also in this rather fragmented and
diverse region, in terms of geography, size of markets, culture and
stages of economic development? To my mind, much greater regional
co-operation in the monetary and financial arenas should be on the
policy agenda. Such co-operation can take many forms, ranging from
increasing and more open interactions between central banks in the
Asian region for the purpose of enhancing the stability, integrity,
diversity and efficiency of financial intermediation in the region,
and admittedly very much further down the road, to serious
discussions of whether monetary integration and the establishment
of an Asian Monetary Union should be a goal.
But to do that, we need to build stronger personal links between
economists working on monetary and financial issues at
universities, in central banks and in international institutions
such as the IMF and the BIS. By debating and discussing and, yes,
disagreeing, we can over time generate much more clarity about what
path we need to follow in enhancing monetary and financial
stability in Asia and elsewhere.
Some may wonder why I include academic economists in that list.
I do so for three important reasons.
First, research undertaken in universities very frequently
serves as a starting point for work undertaken in central banks.
One of you may just have written a very good paper on the
sensitivity of the New Zealand economy to international business
cycles or the determination of capital flows between Thailand and
the rest of the world. It may well be that this paper, unknown to
the author, triggers research at the Hong Kong Monetary Authority
on how sensitive our economy is to external factors or on the
determination of capital flows in and out of Hong Kong.
Secondly, academic research undertaken in a free and open
manner, and presented at conferences such as this, serves to
improve the quality of research in central banks. There is a strong
presumption in my mind that competition, no matter whether it be in
the market for airline tickets or in econometric models of exchange
rates, are beneficial to consumers - and central banks are large
consumers of economic research. More directly, I know that some of
the HKMA's research staff will present papers here, and I am sure
that your comments on the papers will trigger ideas for how they
could be improved. Next time, they will be better.
Thirdly, universities are the source of staff for central banks.
We do hire your students and sometimes we are even able to hire
academic researchers.
In sum, the Asia-Pacific region needs more co-operation and
exchange of ideas in the monetary and financial sphere, and to
achieve that it needs stronger links between economists working in
this area in central banks, international institutions and
universities. This is exactly what the Australasian Macroeconomics
Workshop is all about, and I am delighted that we could tempt you
to come to Hong Kong for this year's meeting. Thank you and let the
fun begin.
