Here I am specifically referring to those with financial markets that are small relative to the amount of international portfolio capital that can be mobilised by foreign investors, and those acting for them, but big enough to whet their appetite for profit. Arguably, the market discipline imposed on macro-economic policies of emerging markets may de facto be more stringent than those imposed on developed markets. Indeed, what is acknowledged by many as an unsustainable, large current account deficit has been sustained in the United States for some time now, no doubt for a lot longer than if one of equivalent size relative to GDP were run by an emerging market. To be sure, there is consensus on the need for greater macro-economic discipline, robust institutions and market structures, as a defence against monetary and financial instability. There has been much progress, for example, on improving corporate governance, and I do not wish to belittle the serious efforts made at this important micro level, through the promotion, and the interaction, of individual, regulatory and market disciplines. There is also much greater discipline in pursuing prudent macro-economic policies, to the extent of attracting criticisms of excessive conservatism, particularly in respect of the running of substantial current account surpluses and the accumulation of large foreign reserves. I am sure these independent efforts of individual jurisdictions, reflecting their different pre-occupations, arising from different domestic circumstances, will, in the fullness of time, ease their tasks in the maintenance of monetary and financial stability.

To be sure, such willingness has not been entirely voluntary. Neither has the pace with which openness is being pursued. For relatively small domestic markets, there is understandably a lack of attraction for the large and sophisticated international financial intermediaries. And so there may be special privileges or incentives offered, at the risk of creating structural distortions in the financial system, as enticement for the esteemed presence of the household names of international finance. More important, individual jurisdictions have been, whether of their own free will or under pressure, pursuing financial openness, not just in respect of the financial system, but also in respect of the international mobility of capital. This they do so, in some cases, perhaps prematurely, by reference to their ability to manage the associated risks to monetary and financial stability on a continuous basis, in keeping with the demands arising from the changing scene, and changing risks, of international finance. As a result, the path towards financial openness has not been a smooth one, and diversions, although of a defensive nature, have been rather frequent lately. This is an aspect to which I shall return later. Let me turn first to how financial openness has been manifested in the dynamics of financial intermediation in Asia: this is the fourth characteristic of Asian finance that I wish to talk about. High public-sector and private-sector savings, less developed financial systems and financial openness have affected financial intermediation in two ways.