国际贸易专业外文翻译金融自由化与货币政策东亚合作.docx

国际贸易专业外文翻译金融自由化与货币政策东亚合作.docx

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国际贸易专业外文翻译金融自由化与货币政策东亚合作

FinancialLiberalizationandMonetaryPolicyCooperationinEastAsia

Author：

HweeKwanChow,PeterN.Kriz,RobertoS.MarianoandAugustineH.H.Tan

Nationality:

Singapore

SourseandType:

SMUEconomicsandStatisticsWorkingPaper,SeriesHttp:

//unjobs.org

Journaltime:

May2007,P2-3,5-7,21

Itiswellrecognizedthatstrongdomesticfinancialmarketscanplayakeyroleineconomicgrowthanddevelopment.Soundfinancialinstitutionsandwell-functioningmarketsfacilitatethemobilizationandefficientallocationofsavings,therebyimprovingproductivityandcontributingtogrowth（Levine2004）.ThisisparticularlyimportantforEastAsiainviewofthehighsavingratesoftheregionalcountries.ThelimiteddevelopmentoflocalfinancialmarketsandtheirsmallfragmentednaturehavealsoledtoalargepartofAsiansavingsbeingintermediatedoutsidetheregion.SurplussavingshavemostlybeenchanneledtotheUSandthefundsreturntoAsiathroughUSdirectandportfolioinvestment.FosteringdomesticfinancialmarketsandregionalfinancialintegrationisimportantbecauseitnotonlyfacilitatestheintermediationofAsiansavingswithintheregion,butalsoattractsforeigninvestmentininstrumentsdenominatedinthedomesticcurrency.SuchalternativesourcesoffundingwouldreduceEastAsia’srelianceonforeigncurrencyborrowingandconcomitantly,theriskexposureoftheregiontomaturityandcurrencymismatches.

However,asthecountriesinEastAsiaderegulatetheirfinancialsectorsanddeveloptheircapitalmarkets,akeyissuethatconfrontspolicymakersisthegreatercomplexityofrisksthatisinjectedintothefinancialsystem.Inparticular,capitalaccountliberalizationheightensthespeedandmagnitudeofinternationalspilloversandmaypotentiallyincreasethevulnerabilityofindividualcountriestoexternalfinancialshocks.Manystudieshavefoundempiricalevidencethatfinancialdevelopmentandinparticular,financialopennesscanincreaseacountry’svulnerabilitytocrisis（seeinteraliaRajan2005andKaminskyandReinhart2003）.Infact,considerableblameforthepastfinancialcumcurrencycriseshasbeenplacedonimpropersequencingofliberalization.

Overthepastquartercentury,thecombinationofafixedexchangeratewithanopencapitalaccount,hasprovenlethalinsmallopeneconomies,particularlyinemergingmarketswithweakfinancialsystemsandregulatoryinstitutions.Thefaultseemstopointtopoliciesthatopenedthecapitalaccountprematurelywhilekeepingtheexchangeraterigid.Suchacombinationhasoftenledtomassivecapitalinflowsthathaveoverwhelmednascentfinancialsystems,promptingconsumptionandassetboom-bustcycles.Whenwefurthercombineafixedexchangerateandprematureopeningofthecapitalaccountwithaweaklystructuredandregulateddomesticfinancialsector,currencycrisisquicklyturnintofinancialcrisisandperhapstofull-blowneconomicandpoliticalcrisis.SuchascenarioplaguedLatinAmericathroughoutthe1980sand1990s.Ittookthecrisisof1997-98todemonstratethatAsiawasalsonotimmunetothesesamepolicyinconsistencies.

Sufficientlyliberalizedanddevelopeddomesticfinancialsectorsarenecessarytoabsorbandallocatecapitalinflowstotheirmostefficientuses.Flexibleexchangeratesallownecessaryinternationalrelativepriceadjustmentsandhelpallowassetmarketstoclear（Obstfeld2004）.Withoutexchangerateflexibility,economicadjustmentswilltakeplaceintermsofthepricelevel,outputoremployment,orassetmarketvolatility（FrankelandRose1995）.Unlessdomesticfinancialsectorsaresufficientlydevelopedandexchangeratessufficientlyflexible,capitalaccountliberalizationisprematureandeffectivelyneutralizesthestabilitybenefitsoffixedexchangerates.Thatthisdoessoatatimewhenthedomesticfinancialinfrastructurecanill-affordmassivesurgesandreversalsinliquidityandfinancing,haspromptedanumberofeconomiststoremindpolicymakersandprofessionaleconomistsalikeofthedangersoftheopen-economytrilemma.Fully-opencapitalaccountsrequirebothdomesticfinancialliberalizationandexchangerateflexibility.Thispaperadvocatestheoptimallycascadingoffinancialliberalizationthatisconsistentacrossthreedimensions:

extentofdomesticfinancialliberalization;thedegreeofexchangerateflexibility;andthescopeofcapitalaccountliberalization.

2.1OptimalSequencing

Underoptimalsequencing,liberalizationoccurssequentially.LetAi∈[A1,…,An]representtheithofndifferentstagesofdomesticfinancialsectorliberalization.LetBi∈[B1,…,Bn]representtheithofndifferentdegreesofexchangerateflexibility.Here,onecanthinkofB1asapeggedbilateralexchangerateandBnasafullyfloatingexchangerate.Finally,letCi∈[C1,…,Cn]representtheithofndifferentstagesofcapitalaccountliberalization.Astrictinterpretationofoptimalsequencingsuggeststhefollowingconceptualframework:

Thatistosay,first,adomesticfinancialsectorliberalizationprogrammustbedevelopedandimplemented,i.e.allnphasesofAarecompleted.Oncedomesticfinancialsectorliberalizationisfullycompleted,onlythenshouldthedegreeofexchangerateflexibilitybeincreased.Sinceitgenerallyrecommendedthatsmallerdegreesofflexibilityshouldprecedefullfloats,theexchangerateflexibilitydimensionoffinancialliberalizationiscompletewhenallndegreesofBarepermitted.Finally,oncethedomesticfinancialsectorisliberalized（i.e.,AhasgonefromA1toAn）andtheexchangerateisfullyflexible（i.e.,BhasgonefromB1toBn）thenandonlythen,shouldstepsbetakentoliberalizethecapitalaccount,C.Aswithdomesticfinancialsectorliberalization,capitalaccountliberalizationhasitsbabysteps（somethingclosertoC1）likeFDIorlong-terminvestmentsforinfrastructuralpurposes,itsmoreadvancedlikethefullliberalizationofshort-termportfolioflowstoitsmostfullyliberalizedandcontroversialphases,theallowanceofshort-termspeculativeflows,suchasthosefromhedgefunds（somethingclosertoCn）.

Inpractice,sequencingissubjecttoconsiderableleakage.Asmarketsgrowanddomesticfinancialsectorsdevelop,therewillbesomedegreeofcapitalflowacrossbordersevenwiththebestofcapitalcontrols.Butatthesametime,thecostsofcapitalcontrolsenabledisparitiesinproductivityandcompetitivenessbetweenglobalandinsularmarketstopersist.Globalmarketsarefiercelycompetitiveandofferthetruesttestofproductivity.Itishighlyunlikelythatdomesticfinancialsectorsmightdevelopthesamequalityandcharacterofglobalfinancialmarketsontheirown.

2.2OptimalCascading

Incontrasttooptimalsequencing,theconceptualframeworkofoptimalcascadingrequiresdecisionsregardingtheextentofdomesticfinancialliberalization,thedegreeofexchangerateflexibilityandtheextentofcapitalaccountliberalizationaretakensimultaneously.Lettheithphaseofaliberalizationprogrambegivenby（Ai,Bi,Ci）,thenthedesignofanoptimalcascadingprogramcanberepresentedbythefollowingrubric:

Duringnascentstagesofdomesticfinancialdevelopment,rigidexchangeratesandheavycapitalcontrolsareessentialandwillminimizetheoddsofboom-bustcyclesandfinancialcrisis.However,asthedomesticfinancialsectormatures,countriesshouldmakeattemptstoincreaseexchangerateflexibilityandallowforlongertermandstablecapitalinflowsthatservetoincreaseproductivity,technologytransferandcompetitiveness.

Inlatterstages,domesticfinancialsectorliberalizationwillneedbothincreasedexchangerateflexibility,tohelpwithriskmanagementandpricestability,aswellaslater-stagecapitalaccountliberalization,suchascapitaloutflowsforthepurposeofportfoliodiversificationandtheestablishmentofforeignbankingbranchesandnon-bankfinancialinstitutions.Theinternationalizationoffinancialserviceswhichopensthedomesticsectortoforeignfinancialinstitutionsfrequentlyresultsincapacitybuilding.Importantly,thecommercialpresenceofforeignserviceprovidersnormallyincreasesthepressuretostrengthensupervisoryandregulatoryframework.

Oncesuchaliberalizationprogramisfullymature,thedegreeofexchangerateflexibilitycanbeincreasedfurther.Maturedomesticfinancialsystemswillbeabletoutilizeexchangeratevolatilitytohelpadjusttoshocks,smoothconsumption,andhelpmaintainpricestability.Atthesametime,itisunrealistictoexpectthatdomesticfinancialliberalizationcaneverfullymaturewithoutexposuretoglobalfinancialmarketsandcapitalflows,particularlyincountrieswithoutalonghistoryofprivatefinancialbankingandestablishedaccesstooffshorebanking.Inaddition,deepercapitalaccountliberalizationwillrequireincreasedexchangerateflexibilityandliberalizeddomesticfinancialmarkets.

China’sliberalizationprogramrepresentstheclassiccaseofoptimalcascading.From1994untillate2005,theyuanwaspeggedtotheUSDollaratafixedrateof8.28RMBtoUS$1.Citingunderdevelopeddomesticfinancialmarketsandlegalinstitutions,theChinesecentralbankarguedunambiguouslythatitsbankingsystemwasnotreadytohandleaflexibleyuan.WhiletheyuanremainedfixedtotheUSdollar,Chinadidnotcompletelyrestrictcapitalflows.ChinahasbeentherecipientofconsiderableFDIcapitalflowsandothertypesofcapitalflowsthathaveleakedinthroughtheconsiderablepresenceofforeignbranchoperationsandoutsourcingoperations.Mostrecently,theChinesecentralbankhasallowedtheyuantofloatwithinatightbandwhileatthesameti