to the momentum of that flow. it was a pure case of risk versus return. 27. in addition, growing competition at the low - wage end of industries came from other asian and non - asian economies. in europe, cheaper production came from the restructuring economies of eastern europe. competition came from the revival of latin american economies with improved access to the us market through nafta. in asia, india and china are emerging as major exporters. as a result, exports in asia suffered a downturn, while imports continued to rise, leading to growing levels of current account deficits. 28. then came problems on the exchange rate front. the volatility of key exchange rates, particularly that of the yen against the us dollar, has placed the balance of payments of some asian economies under considerable stress. for instance, since most asian currencies are explicitly or implicitly linked to the us dollar, the appreciation of the us dollar severely squeezed the exporters, who have to compete with their rivals in japan and the emerging economies in other parts of the world. the weakness of the yen revived japanese exports, placing japan in direct competition with its major trading partners in asia, as the cheaper yen stimulated exports of japanese durable goods and capital goods to asia, while reducing imports from the region. it did not make sense to export out of the subsidiaries in asean when it was cheaper to buy directly from the plant in japan. the weaker yen also has a tendency to slow foreign direct investment from japan, as it is no longer so expensive to produce in japan. 29. as we are all aware, this combination of asian monetary problems has recently put tremendous pressure on the financial markets, in particular the foreign exchange markets, in the region. this was compounded by speculators who took advantage of these market developments to set up their attacks, resulting in the currency turmoil in asian currencies that we have seen. 30. here i cannot possibly resist the temptation to offer a few comments. there is a common perception that the adoption of more flexible exchange rate regimes by a number of asian economies implied a failure of fixed exchange rate systems. this is in my view a mistaken perception. as all central bankers are aware, there is no one perfect exchange rate regime. one of the dilemmas of any exchange rate regime is how the exchange rate can reflect the underlying economic conditions, which are constantly changing, so that external balance can be achieved. a fixed exchange rate regime can function well if there is strict financial

, but because people expect that the market will continue to rise making it better to buy now to reap short - term profit or hold on for bigger gains in the long run. currently in hong kong, the rapid surge in luxury - property prices may not necessarily be caused by insufficient supply of high - end residential flats, since rentals have not moved up in proportion with the prices. actually, the increases were caused by the fact that many investors, including those from mainland china, were optimistic about the outlook for future prices. 9. apart from regulating the supply of land, another method that has long been used in hong kong to reduce the risk of bubbles in the property market is for banks to act as gatekeepers in preventing sharp increases in mortgage lending. the regulatory measures implemented by hkma on 23 october that tightened the loan - to - value ratio for luxury properties priced at hk $ 20 million or more to 60 % serve this purpose. some may argue that since many buyers of luxury properties are wealthy, they may not need to apply for mortgages and therefore the hkma ’ s measures may not have the expected effect. i agree that this would be the case if all property buyers used their savings and did not need to borrow from banks. however, i do not believe that none of the purchasers of luxury properties borrow from banks. some buyers do not approach banks for mortgages because they still have time before completing the transactions, or because they do not intend to hold the flats for a long time. i also do not believe that the markets for small and medium - sized residential flats could have become so active without abundant credit from banks. i therefore believe that the prudential measures that we have taken and good risk management by banks will help stop asset - price bubbles from forming. 10. while banks will help to control the risks, members of the public and corporations in hong kong also need to be more alert. they should consider what they can afford and not borrow too much at a time when interest rates are so low to avoid getting into financial difficulties when interest rates rise again. but i can see that this is not easy. as hot money continues to flow into hong kong, it pushes the market higher. if this continues, people may get into a mistaken mindset that the market can only go up and overlook the risk that capital and hot would might one day reverse course without warning. 11. finally, i would like to share with you an article i read last week. the article