Already by 2007, Asia (including Japan) accounted for 66.8 per cent of world official reserves, 55 per cent of world population, 24.5 per cent of world GDP, but only 16 per cent of IMF quotas.
My own crude calculations suggest that Asian financial markets will be the largest in the world within the next 10 years, assuming that financial deepening in Asia continues to improve and Asian currencies appreciate relative to the US dollar and Euro. As Nehru foresaw, the economic, political and financial landscape will be turned upside down, but key decisions in both the mature and emerging markets within the next five years will shape that outcome profoundly.
The 2008 Great Global Financial Crisis will be seen in history as a major turning point, just as the 1930s Great Depression set in motion the Second World War and changed the financial landscape for nearly 80 years. Likewise, the present crisis will induce major changes in economic theory, philosophical outlook and in institutional structure.
In this speech, I will first give an overview of what caused the present crisis. Second, what are the possible issues? Third, what
should Asia do in terms of the regional and international financial architecture?
Ultimately the crisis is political in nature. It may have erupted as a financial crisis, but its resolution must inevitably be political because the distribution of losses will be highly arbitrary and controversial. All crises have to be solved by governments, and if not satisfactorily, by the next government.
Finance must serve the real sector. Three key functions of the financial sector are to protect property rights, reduce transaction costs and have high transparency. These are Western concepts that were not understood well within the Asian experience. But Asians do have the advantage of being pragmatic and have the deep historical and cultural wisdom to accept the facts of life and to adjust accordingly.
We have national rights, as well as global responsibilities. How we move forward will depend on all our fountains of patience and understanding to listen to other views and hopefully find the right way forward.
Andrew Sheng holds the Tun Ismail Ali Chair at the Faculty of Economics and Administration, University of Malaya and the former Chairman of the Hong Kong Securities and Futures Commission. These comments were made as part of the third KB Lall Memorial Lecture, held at ICRIER in New Delhi on the 7 February 2009. For a full copy of the speech, click here.