ourselves in the unenviable position of holding a substantial part of our savings in the financial liabilities of an economy that does not save, fearing that a diversification of a small part of such holdings might lead to a sharp fall in the value of the rest, thus shooting ourselves in the foot. we also find ourselves somewhat stuck with recycling a large part of our savings through the developed markets back into the region in a much more volatile form, occasionally creating havoc in our monetary and financial systems. 1 the challenge for asia then, according to its own financial leaders, is to develop a financial system which can allocate local savings to local needs more directly, can be resilient to the risks associated with international capital flows, and be somewhat less dependent on banks as a funding channel. this is no small task. thus far, apart from managing the fall - out from the crisis, efforts have been made to strengthen banking systems. a good deal of work has also occurred to improve capital markets, particularly bond markets. one of the key breakthroughs will be when asian governments and corporates can borrow as needed in open markets, in their own currency and at an acceptable price, leaving any currency risk to others willing to bear it – like foreign investors. australian borrowers have been in this happy position for a long time now, like their counterparts in other advanced economies. for emerging market countries to enjoy the same opportunity would be a major improvement on the past. for this to occur, there needs to be a confluence of high - quality issuers, informed investors, and wellfunctioning markets to allow hedging and swaps. as asian authorities seek to facilitate the remarks made at the recent global bond summit, hong kong. available at http : / / www. info. gov. hk / hkma / eng / speeches / speechs / joseph / 20051115e1. htm development of these markets by removing impediments, and the occasional modest official transaction, opportunities will presumably exist for capable market players in australasia to play a role. opportunities might also lie, perhaps over a longer horizon, in the area of household finance, since the number of middle - income asian households is rising quickly, and their income growth is rapid. it could be anticipated that their demand for more sophisticated asset and liability products will correspondingly grow. one would think that australasian institutions would be well placed, given the skills acquired in their home markets, to take part in

so as to enable the deployment of capital in some prospectively profitable venture. that ( rather 19th - century - sounding ) definition, with an emphasis on intermediation, is still correct as far as it goes. but these days, with an increasing proportion of society's capital – even our infrastructure – held in marketable form, the role of markets in pricing assets is key. we would add, as well, that the role of a financial system is to price risk, in ever more finely defined bundles, and to allow people to adjust their portfolios so as to be exposed to just those risks, and opportunities, that they desire – no more and no less. the system's efforts to provide just that set of possibilities has led to a plethora of sophisticated and increasingly complex products. this development, in turn, has raised questions by various observers and regulators as to whether those who have ended up holding certain risks are fully aware of them. questions have also been asked of late about the back - office infrastructure supporting the most complex transactions, and there is a degree of concentration in some of these markets which could conceivably be problematic under less benign market conditions. nonetheless, these functions beyond pure intermediation seem only likely to grow further in importance for various reasons, not least among them demographic trends. as people confront longevity risk, in addition to the usual battery of market risks, the search will be on for new instruments and practices which enable this risk to be priced and managed. while it is highly doubtful, in my view, that ageing can be addressed simply by financial engineering, the financial system will have a role to play. its effectiveness and efficiency in that role will be a focus of discussion in years to come. it's appropriate, therefore, that some parts of the conference program will be devoted to topics in the retirement income area. it is also fitting that the conference has adopted the title'financial challenges and opportunities in the asia pacific region for the 21st century '. the asia - pacific has been, and remains, a source of economic dynamism – that's the'opportunity'part. but it has also been a scene of considerable financial turmoil over the past decade – that is the'challenge'part. you have had some thoughtful presentations this morning on some of the issues. i could not do justice to all of them in brief remarks. allow me to touch briefly on just a couple of themes. the first is the potential, and need