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Cross-Border Asset Pledgeability for Enhanced Financial Stability

Author

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  • Choi, Gongpil

    (Korea Institute of Finance)

Abstract

Even with the sizable Foreign Exchange (FX) holdings and good credit ratings of its top assets, Asia remains vulnerable to various shocks. This paper highlights the limited crossborder asset pledgeability as a significant factor for the lingering vulnerability in Asia. The dichotomy in asset holdings between pledgeable FX and non-pledgeable domestic assets in major economies in Asia has been the source of increasing stabilization costs as well as weakened market momentum in the region. Specifically, the peculiar feature of asset holdings in Asia reflects seriously deficient cross-border asset pledgeability that is left unaddressed. Asset pledgeability contributes toward financial stability via three channels: 1) capital market development by recognizing the role of collateral, 2) increased shock absorption capacity via collateral management, 3) and the newly activated safe asset provision. Therefore, it is crucial to go beyond the usual market development strategy and expand the overall asset pledgeability in the region that has remained unduly depressed.

Suggested Citation

  • Choi, Gongpil, 2020. "Cross-Border Asset Pledgeability for Enhanced Financial Stability," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 24(1), pages 89-124, March.
    • Handle: RePEc:ris:eaerev:0373
    DOI: 10.11644/KIEP.EAER.2020.24.1.373
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    More about this item

    Keywords

    Cross-Border Collateral; Asset Pledgeability; Safe Asset Shortage; Financial Stability; PVAR (Panel Vector Autoregression); Haircut;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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