Abdul Rasheed Ghaffour: Keynote remarks -"3rd Singapore-China (Chongqing) Financial Summit 2020" Keynote remarks by Mr Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the "3rd Singapore-China (Chongqing) Financial Summit 2020", 24 November 2020. * * * ASEAN has significant achievements to its credit, particularly in promoting regional economic growth; peace; and stability since its formation slightly more than 5 decades ago. Our solidarity and unity have proven to be foundational for the region’s collective effort against COVID-19. This is reflected in the establishment of an ASEAN Response Fund; as well as Leaders’ pledge to, among others keep markets open, grow the digital economy and address climate change. We also recently witnessed a breakthrough in global trade with the signing of the RCEP Agreement that will open doors for trade and investments to flourish further. ASEAN’s journey to deepen financial integration and foster regional connectivity is integral in creating a “highly integrated and cohesive economy”. Allow me to focus on two areas that could be of interest to the esteemed audience today. First – digital transformation – particularly the evolution of the real-time payments landscape in ASEAN to support the growth of e-commerce, cross-border trade and tourism. Development of an ASEAN Payments Policy Framework was followed by significant progress in cross-border interoperability of standardised QR code. This would facilitate payments and remittances. ASEAN’s increasingly interconnected and digital environment is supported by strong regulatory cooperation.

No one, however, asked, in a world of uncertainty, how to measure the “neutral” level of the interest rate. That was assumed as a given. This is the theoretical basis of the so-called Taylor rule. Nor was the crisis understood by those who continued to assume that financial markets were perfect, without frictions, in which the inflating and bursting of speculative bubbles is part of a moving equilibrium condition, in which economic policy should not intervene. In accordance with this approach, monetary policy, or the prudential supervision system, should not intervene in order to avert erratic market behaviour, which causes excessive flows of indebtedness and unstable dynamics in financial activities, but rather intervenes ex post, in order to reinflate the bubble when it bursts. Doing it that way, by reinflating it, the bubble has finally burst with detrimental effects on the world economy. BIS Review 82/2009  1  Franco Bruni’s book demonstrates that the excessively accommodative monetary policy following the dot-com bubble and 11 September fuelled the subsequent speculative bubble, which then burst in the summer of 2007. He himself acknowledges that the main responsibilities probably do not lie with monetary policy, but rather with the absence of regulation of new financial instruments, which permitted institutions to increase their leverage capacity and favoured the indebtedness of households and firms. However, monetary policy contributed to the build-up of imbalances by keeping interest rates very low, above all, during the period when the US economy was starting to pick up again.