system, and strong governance. asia ’ s simpler banking model, and reforms to strengthen bank risk management and risk - based supervision, help to foster a strong first line of defense. but as i mentioned earlier, we would risk false sense of security if we believe we can depend just on our simpler banking model. with economic and financial liberalization, especially propelled by the regional economic integration such as asean economic community or aec, that simpler banking model is changing. i will return to this issue later. for now, let me return to basel iii and the potential side - effects for asia? there are some concerns about unintended consequences from basel iii that bankers and regulators in asia have voiced to the standard setters. i will, at this time, not comment on those issues which are not concluded such as liquidity rule. one of the most important and immediate consequences would be impact on trade finance which is a critical issue for emerging economies and asia. this is because our economies and financial structure is more dependent on it, compared to some western economies. let me elaborate. international trade is a major driver of gdp as our export is part of the global and increasingly integrated regional supply chain. however, many of our exporters are smes not large conglomerate. these local smes rely on bank financing, as our financial system remains more bank - based than market - based. supplier of trade financing is still banks in western countries, especially european banks. the deleveraging of european banks can reduce the supply of trade financing and impact growth and development. to address this, it is important that basel committee recognizes that trade financing has relatively large impact on asia, compared to the western economies for which basel iii is mainly geared. treatment of trade financing in leverage ratio framework will create incentive for banks to shift away from trade financing towards other types of financial transactions, including derivatives which have lower impact on leverage ratio, but can earn higher return. this is because they are assigned lower credit conversion factor even though trade financing is less complex, more familiar, has low liquidity risk as they are self - liquidating, and most importantly, it clearly serves real sector. we believe these rationales argue for a more appropriate treatment of trade financing to ensure that the basel iii framework is appropriate for asia. the current effort of fsb to survey unintended consequences of reforms on emerging market is welcomed. bis central bankers ’ speeches before ending this note on basel iii, let me touch on thailand ’ s own take on these

responses to a precipitous crisis, unconventional monetary policy measures have not only been maintained, but in many cases have been applied more intensively with ever greater degree of experimentation and radicalism. it is striking that after all this time, the crisis mentality among policy circles has yet to fully abate. the agglomeration of these transitional forces has had profound impacts on economies the world over. together, the slowdown in world trade and the shift to services have underpinned important changes in inflation and growth dynamics. in terms of inflation, globalization has for many years increased the importance of foreign factors in price dynamics. persistently low and more synchronized inflation is partly attributable to the effects of rising competitive pressures in world markets as well as common forces such as falling energy prices. as global trade adjusts, the influence of external factors has regained prominence. at the same time, the rising importance of services has impinged on the inflation process. services prices tend to be more rigid than goods prices because they embody a larger share of labor input, and wages tend to be sticky. this may have contributed to inflation having become more persistent. at the same time, the digital revolution has driven the prices of many modern services, such as telephone calls, news, and entertainment to essentially zero. the upshot is that the link between inflation and domestic measure of economic slack, as traditionally captured in the phillips curve, has weakened and disappeared altogether in some cases. in terms of growth, slowing global trade and the rise of services implies slower and less capital intensive economic growth. for highly open economies, slowing world trade has undermined export as a growth engine. at the same time, the transition to services has also contributed to the growth headwinds given that modern services is less labor and capital intensive than manufacturing. think of google ’ s 40, 000 workforce compared to general motors ’ 800, 000. or the fact that uber is the world ’ s largest provider of auto transport without owning any cars. or that airbnb is one of the world ’ s biggest provider of accommodation without owning a single hotel. given that investment is a relatively interest rate sensitive activity, to the extent that the transition to services has dampened investment, it may have also made the economy less responsive to monetary policy. finally, the ultra - accommodative monetary policy stances of advanced economies have contributed towards greater global asset price co - movements and increased cross - border financial spillovers. in