of foreign reserves, intentional or otherwise, are questionable in terms of their sustainability, just as we all question the sustainability of the current global imbalance, or rather, the sustainability of the us external imbalance. they are, arguably, the two sides of the same problem. from whichever side you are looking at it, a problem that is considered unsustainable will, of course, be corrected, sooner or later, and the questions we all would like to have answers to are how, and how violent or benign the inevitable market adjustment might be. i am afraid i do not have answers to these questions. but i just would like to point out, in this connection, that the style of management of foreign reserves, when the exchange rate of the domestic currency is flexible, is likely to be more proactive than is otherwise the case, in terms of for example currency allocation. managers of foreign reserves are ultimately held accountable to the people they serve, and the amounts, as i pointed out at the beginning of this survey on asian finance, are getting to be very large indeed. they are, possibly, large enough to make a difference to the dynamics of the global markets for foreign exchange and for major classes of financial instruments, and enough to make a lot of people with the relevant responsibilities feel uneasy. asian monetary co - operation indeed, this survey, focusing on six characteristics of asian finance, represents, to me at least, a rather unhappy state of affairs. asian finance is in a fragmented state, understandably though, given the many currency jurisdictions present, each adhering to the asian tradition of minding one ’ s own business. to be sure, the desire to pursue and maintain financial openness, in view of the potential and demonstrated benefits to growth and development, is still strong. but many have become weary, worried, cautious or shocked to varying degrees by the experience of financial globalisation that came with financial openness and intensified by the revolution in information technology. from a regional perspective, it does seem that asian finance is organised in such a way that, instead of harnessing its financial strength to its advantage, it finds itself in a position of vulnerability to financial instability. it is with this sentiment that i turn now to the subject of asian monetary co - operation. some would argue that the fragmented state of asian finance, to the extent that it is an issue, is merely a reflection of the diversity of asia, in terms of history, geography, culture, stages of economic development,

it is easy to appreciate this by pointing to some impressive numbers, such as those relating to the amount of foreign reserves held by asian economies and the amount of portfolio and foreign direct investments going into, or coming out of, asia. indeed, there are seven economies holding foreign reserves in excess of us $ 100 billion and all seven of them are in asia1. together they hold a total of over us $ 2 trillion of foreign reserves, which have doubled over the short period of only three years. the sheer size of these foreign reserves and the business opportunities they make available have greatly enhanced the level of sophistication in their management. increasingly, such management is making use of advanced financial instruments and expert services offered by international investment banks, and is much more alert to shifts in short - term trends in currencies as well as in interest rates. private - sector savings in asia are also very substantial, given the high savings rate, which is generally in double digits and, for some, as high as 30 % to 40 %. although the management of private sector savings in asia is generally a lot less sophisticated by comparison, it is being increasingly institutionalised, along with the introduction of provident funds, and is managed by professionals, becoming increasingly active in the international markets. over half of the new issues of us treasury securities are now taken up by asian economies. and asia is now a large net exporter of portfolio june 2004 figures. capital. for nine emerging asian economies ( excluding japan ), the amount was a net us $ 225 billion in 2003. the second characteristic of asian finance is, by contrast, the lack of sophistication in domestic financial intermediation. the effective channelling of savings into investments is crucial for the promotion of economic growth and development. this is something that developed markets with advanced financial systems take for granted. yet, in a significant part of asia, notwithstanding its financial clout, a significant part of domestic savings is still put under mattresses. a convenient and effective channel that could be used to absorb these savings, in a manner that commands the confidence of those who save, does not exist. where some form of financial system exists for facilitating the important process of financial intermediation, it is usually a system that suffers from a preponderance of banks. this lack of diversity in the financial intermediation channels is widespread in asia ; and frustratingly so, particularly for those with responsibility for promoting such diversification, for the sake of efficiency as