There are two channels through which the effects of deleveraging will be transmitted to Asia: financial and trade. The financial channel could see several global banks operating in Asia downsize their assets. The areas more likely to be affected are trade financing, project financing, asset leasing, SME lending, and syndicated lending. No doubt, some Asian banks will step up and fill some of these gaps. But it is unlikely that there would be full substitution. The resultant tightness in credit could lead to a slowdown in economic activity. The trade channel could see transmission through a slowdown in exports to the US and Europe as consumption and investment in the latter become weaker.   According to the ADB, 60% of sales from developing Asia are to the G3 economies.   According to the IMF, if growth in the EU declines by 3.5% points below the baseline for two years, growth in Asia will decline 1.5–4.0% points below the baseline.   Taking the perspective from Singapore, Europe is also one of our largest trading partners and source of investment. A scaling back of global risk appetite precipitated by slower growth in the G3 will dampen consumer and business sentiment in Asia generally. In short, Asia is not decoupled from America and Europe. But while Asia is not decoupled, it will not derail either. Growth will slow but will not stall. Asia is entering the current downturn from a position of strength.   Public finances are healthy.

8  BIS central bankers’ speeches  A weaker currency is a normal consequence of more expansionary policy in an open economy. Each of the countries affected has the option of adjusting its own monetary policy in response. All countries cannot depreciate their currency against each other, but all countries can conduct more expansionary policy if they prefer, with conventional (lower policy rates) or unconventional methods (such as asset purchases). More expansionary monetary policy will increase real activity, world trade, and both exports and imports, which in a situation of underutilised resources is to the benefit of all. Monetary policy is not a zerosum game. References Adrian, Tobias and Hyun S. Shin. 2011. “Financial Intermediaries and Monetary Economics.” In Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics,Volume 3a, chapter 12, pp. 601–650. Elsevier. Assenmascher-Wesche, Katrin, and Stefan Gerlach. 2010. “Credit and Bubbles.” Economic Policy 25(63), pp. 437–482. Bean, Charles R. (2009), “The Great Moderation, the Great Panic and the Great Contraction.” Schumpeter Lecture, Barcelona, 25 August. www.bankofengland.co.uk. Bean, Charles, Matthias Paustian, Adrian Penalver, and Tim Taylor. 2010. “Monetary Policy after the Fall.” In Macroeconomic Challenges: The Decade Ahead. Federal Reserve Bank of Kansas City. www.kansascityfed.org. Bernanke, Ben S. 2010. “Monetary Policy and the Housing Bubble.” Speech on January 3. www.federalreserve.gov. Bernanke, Ben S. 2011a. “The Effects of the Great Recession on Central Bank Doctrine and Practice.” Speech on October 18. www.federalreserve.gov. Bernanke, Ben S. 2011b. “Statement.” Statement before the Committee on Financial Services, U.S. House of Representatives, July 13. www.federalreserve.gov. Blinder, Alan. 1998.