I very much hope that I can convince you today why this is so. As I shall demonstrate later, the financial significance of Asia is indisputable. Yet, in many parts of Asia, financial intermediation, which is so important to promoting economic growth and development, remains elementary. There is I think an urgent need for Asia to harness its substantial financial resources for promoting growth and development but also for minimising Asia’s vulnerability to financial instability. With financial globalisation, the ability of Asia to get this right has significant implications for global finance. I also hope that I can, at the same time, raise your interest in some of the specific monetary and financial issues that we are tackling, in the region as a whole and in individual economies, with a special emphasis on China, including Hong Kong, where I come from. Asian finance Let me begin with a description of Asian finance, as I see it. There are six characteristics I would like to draw your attention to. The first is the financial significance of Asia. As I mentioned earlier, this is phenomenal. It is easy to appreciate this by pointing to some impressive numbers, such as those relating to the amount of foreign reserves held by Asian economies and the amount of portfolio and foreign direct investments going into, or coming out of, Asia. Indeed, there are seven economies holding foreign reserves in excess of $ billion and all seven of them are in Asia1.
But the questions that should be asked are whether they are sufficient; and if not, what is. These are issues that have been occupying our minds post-Asian financial crisis, for I certainly do not wish, in the case of Hong Kong, to mobilise once again, in whatever other form or guise, in the type of high-profile intervention in the stock market we organised in 1998. But there is, as yet, no regional consensus on the need for a long-term solution and what it might possibly be. Meanwhile, it is a fact that there has recently been a discreet drift, or at least temporary diversions, in the smaller emerging markets of Asia away from financial openness. They seem to have become more ready than before to regulate the outflow and inflow of funds, through a variety of formal or informal measures. The measures fall into two categories and are applied, where considered appropriate, selectively, targeting a specific group of market participants, for example non-residents, or activities of a specific purpose, such as those considered speculative. The first of these limits the convertibility of the domestic currency, in either direction, and the second limits the ability of banks to expand their assets or liabilities denominated in the domestic currency. So far these have proven to be  BIS Review 66/2004  3  helpful in maintaining monetary and financial stability after the crisis of 1997-98, and, most important, have not undermined the flow of foreign direct investments.