Even as regional economic integration increases in Asia and other parts of the world, these economies seem a long way from the point where economic, or political conditions, will make a compelling case for monetary integration. In Europe, of course, the political case for monetary integration to a large extent preceded the economic case. And the architects of the European Union integration worked consciously to induce a level of economic integration in Europe that would induce conditions that more closely met the economist's test for an optimal currency area. For most of the emerging markets today, in contrast, the challenge is to establish the conditions that will enable them to live more comfortably in a world where their exchange rates will adjust more freely in response to changing fundamentals. As these economies become more open to capital flows, they will necessarily find it more difficult to occupy the tenuous middle ground with an exchange rate regime that is neither fully fixed nor flexible, but managed in a way that closely tracks the value of the dollar or carefully constrains fluctuations against the dollar. This does not mean that these countries can be indifferent to exchange rate movements or that the exchange rate is irrelevant to the conduct of monetary policy. For many small open emerging economies, price stability and exchange rate stability are obviously intertwined, and a monetary rule that responds effectively to inflation pressure cannot afford to overlook the signals coming from the foreign exchange market.
David Carse: The way forward for banking sector reform Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the American Chamber of Commerce Financial Services Committee luncheon meeting, Hong Kong, 9 April 2001. *  *  *  Ladies and gentlemen, The Hong Kong banking system is going through a period of unprecedented change. This is being driven by shifts in the competitive environment and by changes in the regulatory structure. I would stress that Hong Kong is not alone in this – what we are witnessing here is similar to the trends in other major banking systems around the world. Perhaps the changes have hit Hong Kong rather later than elsewhere. But the changes are now here and they are here to stay. This poses new challenges for the banks and, I would add, for the regulators. The purpose of this speech is to outline the current trends and how the HKMA is reacting to these through the introduction of a number of reforms of the banking sector. The underlying aim of these reforms is two-fold. First, we want to try to promote efficiency and innovation in the banking sector through removing barriers to competition. Second, we want to ensure that the safety and soundness of the banking system is maintained in an environment of increased competition and that there is adequate protection for depositors. Current banking trends These are long-term strategic objectives.