More profound are the fundamental changes associated with the globalisation of finance, which has resulted in a more connected and inter-dependent world. Since the onset of the crisis, the policy response at the national level has been extensive and on an unprecedented scale, aimed to restore the functioning of the financial system and to arrest the steep deterioration in economic activity. Monetary policy was eased substantially, with interest rates brought down swiftly to historical lows. The cumulative fiscal expansion during the period 2007–2009, amounted to close to an average of four percent of GDP. Meanwhile, financial sector policies gave priority to stabilising financial markets and restoring credit flows. While an economic depression has been averted, monetary accommodation has continued with large scale financial market interventions to support the recovery. Fiscal policy, however, shifted to address fiscal sustainability and the increased public indebtedness, following the massive stimulus and support to the financial sector. The challenge is to achieve this consolidation, while ensuring that the economic recovery and market confidence are not undermined. On the wide-ranging financial reforms to address the weaknesses that led to the crisis and to strengthen the resilience of the financial sector, the emphasis has been on enhancing regulation and addressing macro-financial concerns to avoid the build-up of financial imbalances. These policies have also been supported by wide-ranging changes to the legislative framework and institutional structures. An area of policy that has not been as extensive is the cross-border dimension of policymaking, despite the growing inter-dependence between economies.
These frameworks, which have been put in place during the good times, are also being supported by ongoing work, in the area of building a consistent regulatory environment given the increasing presence of Asian banks in each others’ jurisdictions. This is reinforced by cooperation among national supervisors and in the development of arrangements for crossborder resolution. Regional platforms have been established for structured forums for the assessment of risks and vulnerabilities to the region, to increase the prospect for pre-emptive actions to be taken. Collaborative efforts are also ongoing in the area of building regional financial infrastructure, including the financial markets and payment systems to facilitate the efficient intermediation of financial resources in the region. Collaborative efforts are also accorded to the area of anti-money laundering, to ensure the integrity of the increasingly integrated financial systems in Asia. Finally, collaboration has also progressed in the area of capacity building, to strengthen the institutional capability of the central banks in the region to deal with the new challenges of the new environment. Finally, one of the most significant but often under-appreciated trends across most economies in these recent two decades, is the significant rise of inequality within economies. The economic crisis has worsened this trend given the conditions of high unemployment in many parts of the world. In many areas of policy-making, inequality is often not given explicit consideration.