mr yam ’ s statement on the listing of exchange fund notes on the hong kong stock exchange speech by the chief executive of the hong kong monetary authority, mr joseph yam, jp, at the listing of exchange fund notes on the hong kong stock exchange on 19 july 1999. mr lee, mr chan, distinguished guests, ladies and gentlemen, today ’ s signing ceremony paves the way for the listing of exchange fund notes on the hong kong stock exchange next month. in addition to offering retail investors an attractive and reliable investment opportunity, this listing will mark an important milestone in the development of hong kong ’ s debt market. hong kong, and indeed asia as a whole, lacks an active debt market. what should in theory serve as an important pipeline of financial intermediation, through which the savings of the community flow into productive investment, has, in this region, always been constricted. at times, it has been quite clogged up. by the standards of developed market economies, our reliance on the banking and equity markets, the two other channels of financial intermediation, has been, and still is, disproportionately heavy. as a result, we cannot really say that financial intermediation in hong kong is entirely efficient. one consequence is that, in the event of a failure in one of those channels of systemic proportions, the pressure built up in the other channels could become unbearably great, and even explosive. a further consequence is disruption to the flow of money from savings to investment and disruption to the economic activities that are so important to the well being of our community. by contrast, we saw in the case of ltcm how, in well developed financial markets, financial flows can be effectively redirected to the banking and equity sectors in response to the failure of the debt market. indeed, the banks themselves were called upon to rescue ltcm and ensure that, even with dislocation in the debt market caused by excessive leveraging, the financial system could continue to function. no matter whether we are responsible for the plumbing of the financial system or for making money work for the community, we in the financial community all have an interest in ensuring that money flows through these three channels freely, safely and efficiently. one important task for all of us has always been to develop a liquid debt market for hong kong. as you are aware, the exchange fund debt programme, which started in march 1990, is part of that effort, although the development

management. while conventional macroeconomic policies are useful in containing overheating in the overall economy, their deployment is often constrained by their broad - brush nature and the concern about attracting even more speculative inflows. therefore, many developing economies have also adopted other prudential and capital account measures to manage capital inflows and to contain the buildup of excesses in specific sectors of the economy and the banking system. for example, some regional economies have recently tightened the mortgage underwriting standards of their banks, and limited banks ’ foreign currency borrowing and derivatives positions. 12. to effectively manage capital flows, policymakers would need to improvise with the apparatuses in their policy toolkit and apply a policy mix tailored to their domestic circumstances. it is like the use of “ chinese herbal medicine ” – we feel the pulse, carefully calibrate a combination of remedial herbs ( i. e. policies ), and follow through with continuous fine - tuning in the light of market reactions. the process is pragmatic and, to a large extent, interactive. 13. given the need for customised solution at the national level, the sharing of experience is therefore very important. we welcome the timely publication of this book, which provides a good basis for studying the different approaches to managing capital inflows by different economies. individual countries ’ experiences would, collectively, help shed light on the formulation of an effective policy framework. 14. ladies and gentlemen, let me end my remarks by quoting a line from the book : “ risk of crisis as financial integration increases will never disappear, and countries must pursue protection from risks of volatility and sudden stops ” 2. we should always be vigilant, even in peace time. to mr kawai and other authors, congratulations yet again on the launch of this new and important book. 15. thank you. chapter 4 : “ managing large capital inflows : taking stock of international experiences ” ( by susan schadler ). bis central bankers ’ speeches