Ravi Menon: Shanghai and Singapore - financial centre partnership Panel remarks (via video conference from Singapore) by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at Lujiazui Forum 2020, 18 June 2020. * * *  China-Singapore Financial Co-operation Let me first congratulate the Shanghai Municipal Government for successfully convening the Lujiazui Forum while the world is still grappling with the Covid-19 pandemic. Singapore is honoured to be the Lujiazui Forum’s Partner City this year. Covid-19 has unleashed not only an economic crisis but also a growing fragmentation of the global economy. This is a threat facing the whole world. But the countries in Asia are well placed to lead the global economic recovery and forge new channels of cooperation and integration. Finance can play a key role in facilitating this economic recovery and integration. China and Singapore can help to blaze a new trail in financial cooperation and innovation in Asia. 2020 marks the 30th anniversary of the China-Singapore bilateral relationship. Financial cooperation has been a highlight of this relationship. We have made good progress in three areas. First, growing the offshore RMB market. Since 2013, with ICBC being appointed as RMB clearing bank in Singapore, this has helped to promote greater use of RMB in the region. Singapore is the largest offshore centre for RMB deposits and RMB trade finance and second largest for RMB foreign exchange trading, outside Greater China. Second, enhancing the links between our capital markets.

Capital markets could go through a process of progressive and partial fragmentation: no significant capital account opening would occur in many parts of the world. Conversely, new barriers could be erected either in the form of “soft” capital controls or through national regulations forcing financial institutions to ring‐fence local pools of capital and liquidity. There would be little convergence in domestic financial systems and regulations. Foreign exchange reserves would keep growing, both in absolute terms and as a percentage of world GDP. This scenario may be seen as the only realistic response to increased diversity in a multipolar world. The systemic consequences, however, are not clear. In such a world,  BIS Review 127/2010  3  current account imbalances would be heavily influenced by public actions and policies. Regulatory competition would determine the location of financial activities and the allocation of savings. In the absence of some “rules of the game”, tensions would naturally arise between countries regarding many aspects of their domestic and international macroeconomic policies. The opposite scenario would involve the progressive opening of all capital accounts, together with some (more or less intensive) convergence in financial systems and regulations. This would allow for the emergence of a unified world capital market, an efficient allocation of savings across countries and a smooth financing of current account imbalances. Experience shows, however, that an open international financial system is not inherently stable and, therefore, very dependent on strong infrastructure. Two elements of such an infrastructure seem especially important.