peter pang : policies adopted by authorities in different jurisdictions with respect to international reserves welcoming remarks by mr peter pang, deputy chief executive of the hong kong monetary authority, at the international monetary fund independent evaluation office ( ieo ) / hong kong institute for monetary research ( hkimr ) workshop, hong kong, 24 march 2011. * * * it is a pleasure to welcome all of you to this event co - hosted by the hong kong institute for monetary research ( hkimr ) and the independent evaluation office of the imf. the hkimr, as some of you already know, is a subsidiary of the hong kong monetary authority. its objectives are to promote research on longer - term and wider policy issues of relevance to the monetary and financial development of hong kong and the asia region ; and to foster cooperation and cross - fertilisation of research efforts between academics, international financial institutions and the hkma research activities. for this reason we are particularly pleased to co - sponsor this workshop which deals with the important topic of policies adopted by authorities in different jurisdictions with respect to international reserves and with the advice the imf gives in this regard in its consultations with policy authorities. the accumulation of international reserves has become one of the issues at the center of debates about the functioning of the current international monetary system as well as about reforms of this system. one lesson that authorities in this part of the world drew from the financial crisis in the late 1990s was that strong policy fundamentals are not always enough to guard against the vagaries of international capital flows. a sizable cushion of international reserves is important as a buffer to guard against sudden changes in market sentiments that can lead to capital outflows and pressures on the currency. starting shortly after the asian financial crisis reserves were thus accumulated in the region to build up such buffers. but holding large amounts of reserves is of course costly as they are typically invested in highly liquid assets with relatively low yields compared with some alternative uses of the funds. it is partly for this reason that authorities in the region have taken steps to create a mechanism for pooling some of their reserves in the form of the chiang mai initiative which started in year 2000 and its multilateral extension which was agreed on in 2010. while the size of the pool of reserves under the chiang mai agreement is relatively modest compared to the potential needs for some of the larger economies in the region, the importance of the agreement goes far beyond the aggregate amount of reserves involves. it reflects a desire by authorities in

in many instances served to strengthen their trade and investment links with china. bis central bankers ’ speeches 16. for financial institutions, things are also in motion. it can be envisaged that the intermediation and servicing of capital flows into and out of china present fresh new opportunities, not least with the entry of a whole new grouping of investors into international capital markets. also, with the institutional management of household savings being relatively low in china at present, an increase to levels more commonly observed in other economies would signify a great deal of opportunities for the asset management sector. 17. hong kong, being the gateway to china, has become the hub for cross - border asset management, and it has been a natural base for the managers of qdiis, qfiis and rqfiis. as we look ahead, while the investments funds are coming through hong kong as a first step, it does not mean that the flows necessarily have to stop here. as a global financial centre and an important base for asset management, london makes a natural partner for hong kong when it comes to serving the growing needs of chinese investors when they start investing into a wider array of markets and instruments. and similarly, london and hong kong could explore synergies when it comes to sourcing the funds for investments into china. 18. i hope i have given you a taste of the many possibilities that lay before us as the rmb moves into the international financial landscape. this is a very exciting juncture and i hope that we – financial institutions, businesses, policymakers – would work together to address some of the issues that may inevitably come up along the process while creating values out of this collaboration. to begin with, today ’ s seminar is a good opportunity for us all to share experiences in rmb and to learn from each other. let me once again extend the warmest welcome to all of you. 19. thank you. bis central bankers ’ speeches