In this regard, some of the domestic banks have launched special deposit schemes to attract such funds. Those who already hold lira deposits, bonds and similar assets do not need to do anything. Such assets will be automatically converted into euro when the changeover takes place, and free of any charges. For those who own Maltese lira and euro assets that represent income previously not declared for income tax purposes, the recently launched Special Registration Scheme represents a timely opportunity for such persons to regularize their holdings in terms of the law. In summary, therefore, I would say that there is no advantage to be gained by converting Maltese lira assets into euro before the changeover date. From that date onwards, there will be an ample supply of euro notes and coin to satisfy the needs of the public. More importantly, euro currency will be provided at the official conversion rate without any changes or commissions. Still on the euro, do you think that people are as worried about inflation as they were? According to the Eurobarometer poll taken in September 2006, some 70% of Maltese respondents said they feared the euro would give rise to inflation and over 80% were afraid of abuses and cheating on prices. This fear is largely based on sometimes inaccurate reports in the local media of what happened in some of the countries that introduced the euro in 2002.
So, the phenomenon of large capital inflows into Asia is here to stay and we should learn how to handle it. Large capital inflows pose two risks. First, these flows can potentially overwhelm Asia’s ability to channel them to productive use, and create asset market bubbles – especially in real estate. Residential property prices in some Asian markets have increased by more than 50% since 2009, outpacing income growth. To be sure, there are underlying structural factors supporting housing demand, such as urbanisation, growing populations, and the rise of the middle class. But surplus liquidity and rapid credit expansion fuelled by low global interest rates and large capital inflows have exacerbated asset price inflation in Asia. The unwinding of asset bubbles can be rapid and extremely unpleasant. Second, large capital inflows can turn into sudden outflows. Sharp capital flow reversals can cause exchange rates to weaken, trigger panic in funding markets, and even result in destructive wealth effects. The unwinding of long positions in Asian markets as global investors sought to de-risk their portfolios was partly responsible for the sharp selloff in many Asian currencies in recent months. The most effective way to manage capital inflows is to allow interest rates or exchange rates to go up so that capital is priced appropriately. Indeed, as emerging Asia continues to grow, allowing the exchange rate to steadily appreciate over the medium term is vital to ensuring that capital inflows are moderated and allocated to productive investments.