Asian bond market: the right way to go? The development of domestic bond markets in Asia is better served by market-based reforms and strengthening institutions in individual economies than by the narrow pursuit of regional integration of financial markets.

• Author: Benink, Harald
• Position: NEWS

Regional financial integration is seen as an important way to promote an efficient allocation of resources supportive of economic development and financial stability in the Asia-Pacific region. The creation of a regional bond market became a popular subject of discussions among financial policymakers after the East Asian financial crisis in 1997-1998. The abrupt reversal of capital flows over a span of several months raised questions about the wisdom of relying on short-term bank financing from outside the region, and the need to set aside a sufficient amount of foreign reserves to prevent or mitigate the adverse consequences of such sudden capital outflows.

In contrast to the events during the East Asian financial crisis, the total amount of foreign exchange reserves accumulated by the regionis leading economies exceeded $2.1 trillion as of March 2004. Concern among policymakers about using these reserves to advance the economic growth of countries in the region through the development of efficient primary and secondary markets ahs led to...