Given the diverse nature of the region, it would be highly ambitious and challenging to achieve the necessary preconditions for achieving an integration that is similar to that in Europe. The integration process in Europe was taken forward with the establishment of supranational institutions with mandates to promote common approaches and frameworks across the member states in the union. In contrast, Asia is adopting a more flexible approach. Regional financial integration in Asia has manifested itself mainly in the form of greater regional presence and participation in domestic financial systems. This is taking place with the gradual and sequenced liberalisation of the financial sector and the capital account. Capital  BIS central bankers’ speeches  1  account liberalisation in particular is prompting increased intra-regional investment and portfolio flows which in turn contributes to the deepening of the financial markets. By itself, the liberalisation of the financial sector and the capital account will however, not be sufficient to achieve regional financial integration. Most important, is the development of regional financial markets, the financial infrastructure including the regional payments and settlement systems, harmonising the financial standards and practices including the regulatory and supervisory regime and building the institutional capacity of the domestic financial intermediaries. For the ASEAN region, an agreement has already been reached to allow for different speeds of integration depending on the state of readiness of the respective member countries.
Also, if we were to sell assets in a rising rate environment, we could also experience some capital losses on these sales. In combination, depending on the future trajectory of short and long rates, remittances could even fall to zero for a period.13 There are several important points to make here. First, the potential impact of the purchase program on future Fed remittances was known at the onset of the program – we have no new information here. The outcome depends on how the economy evolves, how we respond, and whether we decide to sell long-dated assets in the portfolio or not. Second, it is important not to put excessive weight on the possibility of a period of zero remittances. Our mandate is economic not fiscal – our job is to return the economy to full employment and price stability. Moreover, in considering the fiscal consequences of our actions, what matters is not what happens to our remittances – that is far too narrow a perspective – but how our actions affect the federal debt-to-GDP ratio over time. This is the metric we should be focusing on in assessing the potential fiscal consequences of our actions. In this respect, it is important to note that the narrow impact of Fed remittances on the federal debt-to-GDP ratio depends on the cumulative amount, not the timing of remittances. Cumulative remittances to date have been hundreds of billions of dollars higher, all else equal, compared to if the Federal Reserve had not expanded its balance sheet.