klaas knot : dutch financial stability in the asian era speech by mr klaas knot, president of the netherlands bank, at the symposium “ the future of the netherlands in the asian era ”, center for japanese studies, university of groningen, 31 august 2012. * * * with thanks to jeroen hessel. introduction ladies and gentlemen, it is always a pleasure to be back here in groningen. i find the two buildings on the conference invitation very well chosen. they symbolise the common fears about the rise of asia. the dutch euromast was modern and imposing when it was built in1960, but now looks small and outdated compared to the brand new sky tree in tokyo, the second - tallest building in the world at a height of 634 meters. 1 the euromast would also be dwarfed by the 492 meter shanghai world financial center or the 509 meter taipei 101. does this indeed show that advanced economies like the netherlands are not able to compete with the larger and more efficient asian countries? i tend to be optimistic. i will discuss the rise of asia with a focus on financial stability. indeed, the rise of asia implies profound changes for advanced countries. but as long as countries face the challenge and adjust their economies, this need not be problematic. on the contrary, asia also provides many opportunities. this applies especially to the netherlands, with our centuries of experience in international trade and finance. after all, our verenigde oostindische compagnie had the only western trading post with japan for over 200 years. until 1859, a number of dutch settlers lived on deshima, a tiny island just off the coast of nagasaki. and already in the 1920s, banks like the nederlandsch - indische handelsbank and the nederlandsche handelsmaatschappij had offices in singapore, shanghai and bombay. influence of asia on the real side the rise of asia is not new. in fact, asia accounted for over half of world gdp for centuries, and only started to lag behind in the 20th century. in a way, asia is now restoring the old balance of power. we saw the rise of japan in the 1960s and 70s, and the rise of korea, singapore, hong kong and taiwan in the 1980s and 90s. but the recent ascent of large countries like china and india dramatically increases the scale and speed of the shift. the share of emerging asia in the world economy increased from 8 % in 1980

to 26 % in 2012. the rise of asia primarily affects advanced economies on the real side of the economy. trade and international competition have intensified. trade with low wage countries has quadrupled the effective global labour supply since 1980. 2 companies more easily offshore stages of their production to these countries. our iphones were designed in the us but are assembled in china. so comparative advantages have not disappeared, but they are changing more quickly than before. the dutch trade monopoly with japan lasted for two centuries. by contrast, the top position in the mobile phone market has already changed several times in the last decades. it switched from after the burj khalifa in dubai, which is almost 830 meters high. this measure of the effective global labour supply comes from the imf ( weo april 2007 ) and is measured as the size of national labour forces scaled by trade openness ( export - to - gdp ratio ’ s ). more trade openness means a larger effective labour supply as more people work in the tradable sector worldwide. bis central bankers ’ speeches nokia in finland via blackberry in canada to samsung in korea. it is vital that western countries become flexible enough to accommodate such more frequent changes, and to prevent structural problems like long term unemployment. this would also help them benefit from asia ’ s fast - growing domestic markets. germany ’ s strong exports to china show that chinese people enjoy driving an audi or bmw as much as we do. the rise of asia also affects inflation in advanced economies – an important theme for a central banker. inflation is lower because consumers directly profit from cheap imports like camera ’ s, computers and clothing. more indirectly, domestic producers also keep prices low because they are afraid of losing market share to asian competitors. the rise of asia has therefore contributed to the decline of inflation over the last decades, alongside other factors like better monetary policy. in recent years however, this was partly offset by the strong increase in food and commodity prices, which is driven by demand from emerging markets. china for instance accounted for 30 % of the growth in oil demand between 2002 and 2005. influence of asia on the financial side while the rise of asia has clear effects on the real side, the effects on the financial side are more controversial. some people claim that asia had a large influence on the exceptionally loose financial conditions that led to the financial crisis. in their view, the strong increase in global liquidity was largely driven by the savings glut in asia, particularly in china. asian