Once linked up, Herstatt risk of foreign exchange transactions involving the two currencies concerned will immediately be eliminated. Payment versus payment (PvP) and delivery versus payment (DvP) within Asian time will become a reality. 57. The fourth area for Asian monetary co-operation is banking supervision and financial regulation. As financial markets are further liberalized and integrated, the growth of cross-border banking activities and other financial transactions is accelerating, increasing the risk of contagion. As ultimately monetary problems surface in the banking system, it is important for regulators in different economies to co-operate to safeguard the integrity of the banking and financial systems in the region. Part of the work will involve the harmonization of supervisory practices, including the adoption of the Core Principles for effective supervision advocated by the Basle Committee. 58. Through working closer together, such as the collaboration of the EMEAP Study Group on Banking Supervision, supervisory authorities in the region would be able to improve their understanding of each others’ banking systems and supervision framework and approach. We will also review practices in the region against the existing Basle Committee benchmarks, identify reasons for any differences and thus help to raise the quality of supervision in the region. Over time, it may be possible to move on to the setting of standards. 59. Last, but not least, in Asia monetary co-operation concerns policy consultation. Clearly, there is scope to improve mutual understanding of each other’s policy framework and priorities.
At the EMEAP forum, monetary authorities have, as I mentioned earlier, examined the whole spectrum of central banking functions quite comprehensively and have identified issues where monetary co-operation would be beneficial. 46. Before going into these issues, let me just make two points about the approach that should be adopted in Asian monetary co-operation. First is that Asian monetary co-operation must be considered within the context of global monetary co-operation. In other words, we should not, and I believe we are not trying to, build Fortress Asia. I do not believe that this is in the best interest of Asia. It is essential that we work within the international monetary and institutional framework as much as possible. Let us not forget that the international monetary order is still largely determined by the G-3 currencies. Asian economies cannot on their own, or without the help of others, determine the fate of the G-3 currencies, even though we may have views about the future system. BIS Review 91/1997  - 10 -  47. Second is that, given the great diversity of the economies in the region, being at very different stages of financial development, Asian monetary co-operation should proceed with flexibility and at a pace comfortable to those wishing to take part in it.