Muhammad bin Ibrahim: Pilot platform for cross-border investment and settlement of
debt securities
Remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia,
at the press conference for the launch of the pilot platform for cross-border investment and
settlement of debt securities, jointly with the Hong Kong Monetary Authority and Euroclear
Bank, Hong Kong, 13 March 2012.
* * *
The world as we know is changing. Many aspects of how the global financial landscape will
change have been discussed. One key area of focus has been the uneven growth
momentum across the world, which is expected to persist for some time, and this
development will have an impact on the trends and direction of the flows of trade and capital
across the world. In essence, the nature of trade and capital flows will be significantly
different from what we have experienced in the past decades; gross capital flows from across
the globe between the east and the west, the north and the south, will be larger in size and
more robust, going forward. These developments may pose risk in particular, to open
economies like Malaysia and Hong Kong. A key safeguard to manage the risks that may
arise from this transformation would be by strengthening our financial systems, to further
develop the capital markets and to strengthen the regulatory and supervisory frameworks.
In the Asian region, accentuating this global transformation are the rapid regional economic
and financial integration and the expansion of domestic demand. While these developments
are likely to further reinforce the strong intra-regional trade and investment linkages that are
already in place, a key aspect of the increased financial integration in Asia is the need for
more efficient intermediation of funds within the region. This includes the mobilizing and
channeling of some part of the sizeable savings in Asia to productive investments. The
average savings rate in Asia is 35% of GDP and Asia as a group has a total of about USD5
trillion in foreign reserves. Even if we invest 1% of this amount, the impact would be
significant.
With further liberalisation of the financial sector and the capital account, and the increased
linkages of the national payment systems in Asia, financial flows within the region is
envisaged to increase. This trend is reinforced by the increased presence of regional
institutions in the individual countries' domestic financial systems and Asia' s favourable
economic prospects and the increasingly more developed and sophisticated financial
markets. This region has already experienced an increase in intra-Asian financial flows. One
should expect that given the uneven growth paths across economies in the next few years,
issuances out of the emerging economies, in particular Asia, will also likely assume greater
importance as an asset class. The greater variety of asset classes would contribute to the
stability of the international financial system. It will also provide a wider range of options for
investors and borrowers and thus, contribute to a more efficient allocation of financial
resources across borders. It should be emphasised that the impact of Asia' s economic and
financial integration, would extend beyond its own region to other parts of the world. Today,
the economic and financial linkages between the emerging economies have gained
significant traction and are likely to continue. All the issues that I had mentioned earlier would
only be significantly realized if we have a seamless payment system that links markets as
one.
As part of our continuing journey in deepening and strengthening our financial markets in
Asia and Malaysia in particular, Bank Negara Malaysia is pleased to be a party to the
launching of the Pilot Platform for Cross-Border Investment and Settlement of Debt
Securities, jointly with the Hong Kong Monetary Authority and Euroclear Bank. This initiative
marks an important milestone in our vision towards deeper financial integration. The rollout of
this platform will provide investors and market intermediaries with more efficient and
cost-effective cross-border access to the bond markets in Hong Kong and Malaysia.
Over the years, the bond market in Asia has expanded significantly. To date, Asia' s share of
the global bond market has increased by almost four-fold since the pre-Asian financial crisis.
In tandem with the growth of the bond markets, the sukuk market in the region has also
evolved as an important avenue for international fund raising and investment activities,
generating significant cross-border flows. Malaysia has been an important part of this
development with well developed bond and sukuk markets. As at 9 March 2012, the
outstanding amount in the Malaysian bond market was RM899 billion compared to
RM301 billion at the end of 2001. This represents a 300 per cent increase over the last
decade. Within the region, both Hong Kong and Malaysia have participated actively within
the EMEAP Group in promoting regional bond market development initiatives such as the
Asian Bond Markets Initiative and the Asian Bond Fund.
I am confident that this pilot platform will bring benefits, not only to Hong Kong and Malaysia,
but the region as a whole. We envisaged that this pilot platform will increase the efficiency of
issuance, investment and settlement of bonds through the increased harmonisation of
cross-border processes and standards. We expect this initiative to strengthen the
cross-border linkages and facilitate the intermediation of surplus funds within the region. This
increase in cross-border flow of funds will further enhance the efficiency in the mobilization of
surplus funds to meet the rising investment needs of the region.
The implementation of this pilot platform is indeed timely and opportune and, will serve as an
important catalyst for further development in linking financial markets within this region. This,
I believe, is a development that we should all welcome.
Thank you.