1. I am delighted to welcome all of you to today's conference on
'Currency Arrangements in Asia: Post-Crisis Issues.' This is the
inaugural conference of our newly established Hong Kong Institute
for Monetary Research. As Chairman of the Institute, I am very
pleased to see an audience and a programme of speakers who are not
only distinguished in their own fields but who also represent a
wide variety of professions and jurisdictions. The opportunity that
today's conference provides for bankers, policy-makers, academics,
analysts, fund managers and journalists to focus together on
practical and theoretical issues embodies two of the main
objectives of the Institute: to encourage interaction between the
financial and academic communities and to promote interflow between
policy and research. This idea of interaction and interflow is
neatly shown in the Institute's emblem, which is on display for all
to see today for the first time. I might add, for the reassurance
of the journalists who have been covering my career as a coin
designer, that I played no part in its design.
2. Not so long ago, the research capabilities of the HKMA were
quite undeveloped compared with those of many similar organisations
around the world. Many of us tended to take the view that, since we
operated a rule-based currency board system linked to the US
dollar, we could simply enjoy a free ride on the decisions made by
Alan Greenspan. That view now no longer applies. In 1998 we
expanded our research facilities by creating a new Research
Department within the HKMA. We also established a Sub-Committee
under the Exchange Fund Advisory Committee, tasked, among other
functions, with recommending improvements to the Currency Board
system and promoting a better understanding of it. With a view to
further developing our research capabilities, in August 1999 the
HKMA established the Hong Kong Institute for Monetary Research to
conduct studies in the fields of monetary policy, banking and
finance that are of strategic importance to Hong Kong and the Asian
Region. The Institute will invite scholars, both local and
overseas, to undertake research on a project basis. In addition, we
hope to promote more general intellectual discussion and debate
through organising conferences and workshops of the kind that we
see today.
3. The Asian financial crisis underlined the need for these
expanded capabilities: it reminded us of the enormous importance of
accurate, sophisticated and speedy analysis to our weighing of
options in a rapidly changing and very difficult situation. More
positively at this time of recovery and reassessment, the many and
diverse opportunities available to Hong Kong must be properly
understood and constantly re-examined if we are to continue to
develop as an international financial centre. We must be ready to
devote the time, resources and imagination to exploring,
questioning, and challenging old assumptions and to developing new
strategies for a rapidly changing environment. In a period of
globalisation and of periodic instability, one of those strategies
must include fostering understanding and co-operation among Asian
economies, particularly in the monetary sphere: the regional
perspective adopted by the Institute, and illustrated in today's
programme, will, I hope make some contribution to that
strategy.
4. The Asian financial crisis was triggered by a massive attack
on the Thai baht, and it deepened as one currency after another
tumbled. The relationship between currency arrangements, financial
stability and economic performance has long been a controversial
subject among economists and the experience of regional crisis has
offered much food for thought. The calm after the storm - the
return of financial stability to the crisis-hit economies and the
general climate of economic recovery throughout the region - make
this an appropriate time to reassess the various currency
arrangements in the region from a number of different perspectives.
In today's conference we focus on three aspects that have a general
application.
5. The first of these relates to the performance of the Japanese
economy and the Japanese yen, and their implications for the
performance of other economies in the region. Over the past few
years, Japan has undertaken various expansionary fiscal and
monetary measures. Money market rates in Japan have been
consistently close to zero. Yet the Japanese economy has been mired
in a recession that has gone on for longer than most would have
predicted. The impact of Japan's problems - and the solutions
adopted - on the development of currency markets in Asia as a whole
is a crucial question for all of us. For the first session, we are
delighted to have the presence at this conference of Professor
McKinnon of Stanford University to offer some insights into this
question using his extensive research on the nature and
implications of Japan's liquidity trap. With Professor Sakakibara
and Dr Aghevli as discussants, this promises to be a highly
stimulating session.
6. An equally burning issue is the question of whether capital
controls are an effective tool for stabilising financial markets,
along with the general question of their domestic and regional
impact. Following the imposition of capital controls in Malaysia,
we have seen a resurgence of interest in this topic, not least
because, contrary to predictions at the time, these measures appear
to have had some effect in restoring a measure of stability. At one
extreme, some commentators argue that all small economies should
adopt capital controls of one form or another as a preventive
measure to deal with the volatilities of huge fund flows. Some take
a middle position and regard capital controls only as a last-resort
weapon against speculation. Others, at the opposite extreme,
believe that capital controls should not be adopted in any
circumstances, since they only serve to distort or retard a
country's economic and financial development. The longer-term
impact of capital controls remains to be fully assessed. Meanwhile,
there is ample scope for debate about what, if anything, their
purpose should be, and whether they are capable of achieving what
they set out to do. For Hong Kong capital controls continue to be a
non-option. But it is still important that we understand their
implications, direct and indirect, on regional markets as a whole.
We are honoured that Professor Dooley of the University of
California, Santa Cruz, will be speaking, in Session 2, on the
relationship between capital controls and financial crises. Dr
McLeod and Mr Roger will be the discussants for this session, and I
think we can all expect to hear some interesting perspectives on
this subject.
7. The third aspect of the Asian financial crisis takes us from
a regional to an international perspective. This is the need for a
re-evaluation of the array of institutions, structural arrangements
and collective policies that make up the international financial
architecture. While there are differing views about whether minor
renovation or complete rebuilding is required, there is at least
strong consensus that the architecture we now have is not
sufficiently storm-proof, and that we need to take a fresh look at
the arrangements for channelling international capital flows.
During lunch today, Dr Morris Goldstein of the Institute for
International Economics, an expert in this field, will share with
us his views on what is broken and what needs to be done to fix
it.
8. These are all quite controversial subjects, and there is much
scope for discussion. We have therefore scheduled a total of 45
minutes for open discussion and questions from the floor in
addition to the more informal conversations over lunch and during
the tea break. I look forward to hearing some lively debate, and I
hope that you will also feel free to suggest topics for future
events of this kind.
9. The smooth and swift establishment of the Hong Kong Institute
for Monetary Research owes a great deal to the efforts of its
Director, Guy Meredith. I take this opportunity to congratulate him
and his able team of staff for the hard work and imagination they
have all put into this project. Finally, may I thank you all for
sparing the time at this busy period of the year for attending the
Institute's inaugural conference. Your presence here gives us much
encouragement, and bodes well for a rich and productive schedule of
activities for the Institute.
