nature of financial flows that they do more often than not lead to overshooting in financial markets. the strong growth track record of asia and indeed of other emerging markets has, with the benefit of hindsight, brought about excess optimism in these markets, producing a compression of yield spreads which underpriced the underlying credit, market and other risks that are typical of emerging markets going through financial liberalization. indeed, alan greenspan said recently that “ in retrospect, it is clear that more investment monies flowed into these economies than could be profitably employed at modest risk ”. with the sharp correction seen in financial markets in asia, against the background that the economic fundamentals have largely remained sound, whether in isolation or relative to other emerging markets beyond the region, it is possible that there might now have been overshooting in the other direction. 22. i am sure, however, that the markets will eventually find their right levels, reflecting new circumstances, for better or for worse. i am not convinced, in any case, that the devaluation brought about by floating the exchange rate is necessarily the panacea for the ills of our asian neighbours. first year economics tells us that the four elasticities of demand and supply of imports and exports may not interact to produce a clearly positive contribution to the balance of payments position from devaluation. furthermore, when stable exchange rates are replaced by flexible, volatile and, in all likelihood, depreciating ones, the demand for hedging in the more volatile environment and under liberalized arrangements may drive exchange rates to such debilitating levels that many would regret the lack of resolve in pursuing sensible policies and in the defence of stable exchange rates in the first place. there is no doubt that confidence in the stability of a few asian currencies has now been badly undermined and rebuilding it may take more than just time. nevertheless, as the very productive asian economies find their feet again, they will soon be on their way with renewed vigour. 23. for hong kong, as very much a service - oriented economy, any erosion of competitiveness, as a result of our currency holding stable against the us dollar while others have fallen, is likely to be mild. our economy is not particularly sensitive to exchange rate changes. the imf forecast for hong kong ’ s growth rate next year is 4. 25 %, only a shade below our trend growth rate of 5 %, representing a healthy consolidation in the circumstances

denis beau : denis beau : monetary and financial challenges for the euro area - what are our options? speech by mr denis beau, first deputy governor of the bank of france, at the faculty of economics and management, strasbourg, 28 february 2019. * * * ten years after the crisis, the ability of the global financial system, and especially the european financial sector, to withstand shocks appears to have been significantly reinforced. this reinforcement is the result of numerous changes which vary in nature : banks now have more capital and its quality has been improved. their transformation activities are better regulated and they have larger liquidity buffers. in europe, the banking sector has also been made more resilient through major institutional reforms, especially the creation of the single supervisory mechanism under the aegis of the ecb and the single resolution mechanism. outside the banking industry, the reforms steered by the g20 have enhanced the functioning of financial markets ( particularly derivatives markets ), improved the oversight and regulation of developments in non - bank financial intermediation ( shadow banking ), and put in place a framework for monitoring and safeguarding the stability of the financial system as a whole through the implementation of macroprudential policy. the crisis has also prompted changes in the way financial institutions operate. one of the most visible ones is that risk and compliance functions have now become an essential part of their organisations. in a more subtle way, there have also been changes in the culture of these institutions, with greater emphasis now being placed on good governance and on the “ purpose ” of certain activities or the “ service ” provided to clients. this strengthening of the financial system ’ s resilience is a major source of confidence at the start of 2019, in an environment marked by mounting geopolitical uncertainties and slowing economic growth. but it is not time for complacency. one of the core challenges we face, particularly in the euro area, is preventing and limiting the impact of new potential shocks. “ madame la vice - presidente ”, you have invited me here today to share a central banker and supervisor ’ s perspective on the different options open to private and public agents for meeting these challenges. rather than talking about options, i would like to emphasise two “ burning obligations ” that fall on all of us, namely : for financial intermediaries, micro and macroprudential supervisors, maintaining a strong vigilance ( i. ) ; and for regulators and the private ( financial ) sector promoting a deeper financial integration