Asian Central Banks

Working Together for a Better Future

THE ASIAN FINANCIAL

CRISIS

The Setting of The Stage Before the Crisis (Alan Shapiro, 2005)

Export Oriented

Foreign Currency Denominated Debt

Government Directed Capital Allocation

Overvalued Currencies

The Experience and Aftermath (Alan Shapiro, 2005)

Chinese yuan against USD (25 %)

Waves of currency selling ( 40-80%)

Huge debt in dollars Capital flight (stock market crashes)

Banking systems disruptedEconomies contracted

Lessons Learnt (Frederic Mishkin, 1999)

Central Bank lender of last resort

International capital flows

Foreign Currency Denominated Debt

International Foreign Reserves

Vietnam

Thailand

Singapore

Philippines

Malaysia

Indonesia

India

China

0 2 4 6 8 10 12

7.1

9.9

6.3

11.2

Real GDP Growth, Annual Percentage Change

2000-081990-99

Source: IMF, World Economic Outlook, October 2008

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-6

-4

-2

0

2

4

6

8

10

-1.313

5.729

7.025

4.942

Current Account Imbalances (Percentage of GDP)

Major advanced economies (G7) Newly industrialized Asian economiesDeveloping Asia ASEAN-5

-60

-50

-40

-30

-20

-10

0

-48-52 -51

-9

-57

-42

-25-26

-32-37

-50

Big Mac Index (%)

FROM THE ASIAN CRISIS TO THE SUB-

PRIME

The Interval (IMF, 2008)

Relatively Low Exchange Rates

Current Account Surpluses (Oil & Exports)

Large Accumulation of Foreign Reserves

1980 1990 2000 2001 2002 20030

200400600800

10001200

33 129

593 654790

1010

International Foreign Reserves in Emerging Asia

International Foreign Reserves US$ bil

Source: Bank of Canada

China

Japan

Saud

i Arab

iaInd

ia

Taiwan

South

Korea

Singa

pore

Hong K

ong

Malaysi

a

Thaila

nd

2,131,600

1,044,327

Foreign Exchange Reserves by Country (US$ mil)

Source: Sovereign Wealth Fund Institute, IMF, and other Governmental Sources

Roads to the Sub-prime Mortgage Crisis (IMF 2008)

Foreign Reserves

Sufficient Cushion against External Financial and Economic Shocks

Transferring Assets to Sovereign Wealth

Funds ($2-3 trillion)

Largest Sovereign Wealth Funds by AssetsCountry Fund Name Assets $Billion OriginUAE - Abu Dhabi

Abu Dhabi Investment Authority $627 Oil

Saudi Arabia SAMA Foreign Holdings $431 OilChina SAFE Investment Company $347.1 Non-Commodity

China China Investment Corporation $288.8 Non-Commodity

Singapore Government of Singapore Investment Corporation

$247.5 Non-Commodity

Kuwait Kuwait Investment Authority $202.8 OilChina National Social Security Fund $146.5 Non-commodity

China - Hong Kong

Hong Kong Monetary Authority Investment Portfolio

$139.7 Non-Commodity

Singapore Temasek Holdings $122 Non-Commodity

Qatar Qatar Investment Authority $65 OilBrunei Brunei Investment Agency $30 OilMalaysia Khazanah Nasional $25 Non-Commodity

Source: Sovereign Wealth Fund Institute

Financial Markets

Equities

Sovereign Debt

Corporate Debt

Real Estate

Infrastructure

Evolving Central Banks (Frederic Mishkin, 2000)

Monetary Policy Open Market Operations, Overnight

Policy Rates, Reserve Requirements, Discount Rates

Financial Markets Temasek Holdings UBS Abu Dhabi Investment Authority

Citigroup

Contributing Factors to the Crisis (Newsweek 2008)

Besides Mortgage Bankers, Wall Street, Credit Rating Agencies

The Federal Reserve

China, Japan and other Sovereign Wealth Funds

Japan

China

OPEC

Taiwan

Hong K

ong

Korea

Singa

pore

Thail

and

593.4518.7

173.9

42.3 60.6 35.3 31.4 31.8

Foreign Holders of US Treasuries (US$ bil)

Source: Bloomberg, The Star

Challenges in the Next

Society

The Next Society

BRIC Countri

es• Virtual banks - increasing

significant (Mishkin F.S., 2007)

• E-commerce - virtual money (no physical existence) (Peter F. Drucker, 2002)

Virtual Banking

and Virtual Money

-5.0

0.0

5.0

10.0Real GDP Growth (%)

20082009

The Next Society

• Standard and Poor’s estimates that around $750 billion of assets – shariah-compliant management

Islamic Financi

ng

•Guardian (21 July, 2009), global population of 65 and over is set to outnumber children under five

Aging Populat

ion

Opportunities – The Road Ahead

• Worker productivity• Financial centre• High growth (China and

India)

Tele-communicati

on

•Transportation•Public Transport•Trade

Infrastructure

Opportunities – The Road Ahead

Agriculture and

Commodities

0200400600800

1000 937

29 103 51

586

4 13.73.286.15

Economic Stimulus Packages, US$ bil

IMF estimates Jan 2009

Opportunities – The Road Ahead

• Decline in manufacturing (Peter F. Drucker, 2002)

• Knowledge products such as the education - tripled in cost

Education

•Islamic Banking Hub•Petro-dollars

Islamic Banking

Facilitating Development

Supporting commercial banks

Helping companies (involved in these industries) to raise capital

Bonds Equity

Question and

AnswerSession