But global finance, however measured, has grown much, much faster. Stock market capitalisation and turnover surged by 153% and 282% respectively. Foreign exchange turnover more than doubled during this period, and has now grown to roughly 70 times of merchandise trade. You have seen the consequences of this disproportionate growth of international finance in many parts of the world, in Latin America, in Asia, in Russia, in Central Europe, and in South Africa, where the associated volatility of capital flows posed serious problems. Even in the US, where the largest markets in the world operate in what must be the most favourable economic environment seen for many decades, the destabilising potential of international finance was brought home by LTCM. Let me hasten to point out here that the rapid development of international finance is not necessarily a bad thing. Indeed, the phenomenon has been one important factor contributing to increasing global prosperity. Much of the Asian miracle as we know it, during the long period of prosperity before the financial turmoil broke out in July 1997, was brought about by financial liberalisation. The crucially important process of financial intermediation, in which savings are channelled into productive investment, has been made a lot more efficient. Money is no longer stored under mattresses, but is, through placements with banks, and investments in debt and equity and their ever-proliferating derivatives, put to productive use farming land, building homes, manufacturing goods and providing services.
This means a greater regulatory burden for all and greater inconvenience to market participants, and possibly implications for the legal and institutional arrangements for regulation. Fourth, this approach may involve tighter rules for the markets. The critics may again say that this will further erode market freedom. But should we be so dogmatic? In any case, it is all a matter of degree. In the end, it is the public interest that counts. Is there, for example, anything wrong in restrictions against the holding of large dominating positions in any particular market, or against the taking of market moving activities? The purpose of a market is price discovery. There is no objection for buying low and selling high, and I would wish anybody who is attempting that the best of luck. But there is no legitimate reason for anybody to be operating in a market in a manner that has the sole aim of moving the price in order to make a profit. Tighter rules aside, it is interesting, and indeed slightly worrying, to note that stronger forms of restrictions and controls have been gaining currency among some monetary authorities or regulators in the past two years. These range from restrictions on domestic credit to some forms of exchange controls. This response is quite understandable and may be a reflection of the failure of the international financial architecture to accommodate the needs of small markets. But it is also regrettable, given the enormous benefit that international capital has brought to the region.