saving too much and spending too little, although those that tell us pay little attention to the fact that we do have typhoons and heavy rains, earthquakes and tsunamis, and we need to ensure that we are able to help ourselves as much as possible in case of need. they also pay little attention to the traumatic experience of the asian financial crisis of 1997 - 98 and the natural inclination to build up ammunition, in the form of foreign currency reserves, ever since. after all, most of us are small, in terms of our economies and our political influence, and the reality of this world is that, when you are small, you are more likely to be tossed around. so we need to be more cautious in our finances. 6. we find ourselves being held, at least partly, responsible for the dilemma currently surrounding the global imbalance, which has been interestingly described as a " stable disequilibrium ". the description begs the questions as to how long the disequilibrium will remain stable and whether the eventual adjustment path to equilibrium is likely to be an unstable one. the answers to these questions remain elusive. 7. this obviously is not a very comfortable position that we find ourselves in. one solution to this structural problem in asian finance, at least to us in the hkma, is greater asian financial integration to promote the stability, integrity, diversity and efficiency of financial intermediation across jurisdictions in asia. at the micro level, an obvious, non - controversial initiative that asian jurisdictions support, although not necessarily for the same macro reasons that i have described, is the development of the domestic and the asian bond markets, hence the emeap abf initiative. asian bond fund 8. as i mentioned earlier, the hkma has the honour of chairing the emeap working group to lead the initiative. this began in 2002 and in june of the following year, emeap launched abf1. abf1 invests in a basket of us dollar - denominated bonds issued by sovereign and quasi - sovereign issuers in eight emeap markets - china, hong kong, indonesia, korea, malaysia, the philippines, singapore and thailand. it was a small but significant step forward. think about it for a moment : eleven very different economies of different sizes, with different economic structures and stages of economic and social development, co - operating for the first time to set up a bond fund and lay the foundation for promoting the development of regional and domestic

catalyst for a greater proportion of regional savings being recycled within the region, instead of through the developed markets of europe and america, there is likely to be some benefit to financial stability. what next in abf 19. let me turn to the question of " what next " in the abf initiative. i am acutely aware of the fact that the hkma is only one of eleven central banks and monetary authorities in the emeap group and that the abf project is an emeap project, and not an hkma project. as i said earlier, i cannot speak for emeap, although abf1 and abf2 were developed while the hkma had the honour of chairing the relevant working group. indeed, we are scheduled to hand over chairmanship in may next year, having exceptionally provided the chair for two consecutive two - year terms. but allow me to tell you, nevertheless, what we in the hkma think could be possible directions to be explored. 20. there are two such directions, which hopefully could lead to an abf3. first is to enlarge the scope of credit acceptable to the central banks as investors, but address the problem of inadequate credit quality through credit enhancement or guarantee arrangements. second is the securitisation of bank assets. both are familiar concepts to the financial markets, and so there is no need for me to elaborate, other than to say perhaps that we favour simple products that can be readily understood not just by simple - minded central bankers but also by the not - so - sophisticated investors in the region. we support the emeap and other regional fora to further look into these ideas. and we look to the private sector to participate fully in this continuing effort. 21. let me close by going back to financial stability and say that the abf initiative, whether it gets to abf3 or abf4 or abfn, is not the full answer to financial stability in the region. asia is particularly vulnerable to financial instability because of, principally, the size of the individual, fragmented markets, relative to international capital, and the openness of those markets, assuming that prudent macroeconomic policies are a pre - requisite that is always observed. to reduce vulnerability from those sources, without stepping back from maintaining open markets, we need greater financial integration or co - operation, and perhaps one day monetary integration. but these subjects should best be left for another day.