more segmented and heterogeneous markets for the old. thus, continued focus on the young may entail everdeclining demand and overcapacity, and could miss the opportunity of exploiting the potential demand of the old. here the microeconomic and structural failure of firms and banks to accommodate new demand may have macroeconomic consequence as well. in many discussions over the past two decades, this dramatic decline in growth and investment prospects has often be attributed to the supposedly unique nature of the japanese economy, whatever that may be. however, if the demographic factors outlined in the previous section do indeed shape the future, then declining prospects for growth and investment returns may have more global relevance. the quantity - theoretic relationship presupposes that non - interest - bearing money is dominated by other positive rate - of - returns assets as a store of value. however, when price is stable and expected risk - adjusted return on investment is very low, the clear rate dominance of the other assets over money may no longer hold. bis central bankers ’ speeches coordination failure in the financial system second, there are signs of coordination failure. banks ’ lending is sluggish, partly because of their inadequate functioning as expert relationship bankers. here a vicious circle seems to be working. to begin with, banks lack the expertise to assess investment in new fields, suffering as they are from problems with non - performing loans and under - investment in their loan officers ’ human capital. consequently banks do not lend. this means that new investments and new enterprises cannot get funding, and thus new markets falter. then, banks miss the opportunities to accumulate new expertise, bringing them right back to the starting point of this vicious circle. another coordination failure is found in capital markets, in the form of excessive risk aversion. fearing unknown unknowns, investors shun investing in riskier securities. their market then becomes thin and vulnerable to non - fundamental shocks. this means they themselves become prone to turning into unknown unknowns, thus the original fear is selffulfilling. these two types of coordination failure in financial markets result in an apparent lack of “ animal spirits ”. piling - up of public debt third, we see a piling - up of government debt. this is partly the result of the substitution of public debt for private debt in the process of balance sheet adjustment, and partly due to the substitution of public demand for private demand during this period of declining growth. according to the oecd ’ s

zeti akhtar aziz : reflections on financial reform – malaysia ’ s experience speech by dr zeti akhtar aziz, governor of the central bank of malaysia ( bank negara malaysia ), at the 2013 china business news ( cbn ) annual meeting and finance summit “ reflections on financial reform – malaysia ’ s experience ”, beijing, 8 december 2013. * * * it is my honour and pleasure to be invited to speak at this 2013 china business news finance summit. as the globalisation of finance intensifies, the world is becoming increasingly more inter - connected and integrated. this has largely been due to the trend towards increased financial liberalisation by most parts of the world. it has been maintained that such deregulation and liberalisation would facilitate the development of more efficient and robust financial systems and that it would result in a more efficient allocation of financial resources across borders. while such financial liberalisation may indeed bring such wide ranging benefits, it also brings with it increased risks that needs to be effectively managed. it was for these reasons that malaysia adopted a conscious effort to put in place the financial and economic pre - conditions so as to enable us to benefit from such financial reforms involving the deregulation and liberalisation of our financial system. allow me to share our experience in pursuing this agenda. following the asian financial crisis, malaysia embarked on strategies for an orderly development of the financial sector. focus was first placed on strengthening the institutional capacity of the domestic financial intermediaries so as to narrow the performance gap between the domestic and international financial intermediaries. in parallel with this was the intense effort to develop the domestic bond market. during this phase of the development of the financial system, significant advancement in the banking sector was made in terms of capitalisation, risk management and governance practices, delivery channels and in human capital development in the industry. this paved the way for the interest rate reform to move to greater market orientation, thereby supporting a more efficient pricing of financial products and services. the more competitive environment that it generated also became an important driver of productivity gains, customer centricity and innovation in the financial system. equally important, was the attention that was given to the development of a deep and vibrant domestic bond market as an alternative channel for the efficient raising of funds, particularly by the corporate sector. the development of the bond market has enabled better matching of long - term projects with long - term funds, and by reducing the over - reliance on the banking system, it has contributed significantly to financial