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Unifying government bond markets in East Asia

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  • Robert N McCauley

Abstract

The Asian crisis of 1997 taught policymakers in the region two main lessons. First, to build up foreign reserves. Second, to develop local bond markets. When central banks in the region accumulate foreign exchange reserves from capital inflows, they also sterilise the inflows. Those with large reserves have commonly ended up issuing their own debt for this purpose after selling off government debt from their portfolios. This, however, has meant that much of the opportunity to develop the bond market has been missed. The conversion of central bank debt into government debt may be advisable even if it means "overfunding" by the government. With a single big borrower, the debt would trade in a larger and more liquid market. The article explains how this could be achieved by Indonesia, Korea, Malaysia, Taiwan (China) and Thailand.

Suggested Citation

  • Robert N McCauley, 2003. "Unifying government bond markets in East Asia," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:0312h
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    References listed on IDEAS

    as
    1. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September.
    2. Teo Swee Lian, 2002. "Debt market development in Singapore," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 183-189, Bank for International Settlements.
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    Cited by:

    1. Barry Eichengreen & Pipat Luengnaruemitchai, 2006. "Why doesn’t Asia have bigger bond markets?," BIS Papers chapters, in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 40-77, Bank for International Settlements.
    2. M S Mohanty & Philip Turner, 2005. "Intervention: what are the domestic consequences?," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 56-81, Bank for International Settlements.
    3. Paul Lejot & Douglas Arner & Liu Qiao, 2004. "Making Markets: Reforms to Strengthen Asia's Debt Capital Markets," Working Papers 132004, Hong Kong Institute for Monetary Research.
    4. Jenifer Piesse & Nitawan Israsena & Colin Thirtle, 2007. "Volatility Transmission in Asian Bond Markets: Tests of Portfolio Diversification," Asia Pacific Business Review, Taylor & Francis Journals, vol. 13(4), pages 585-607, October.
    5. Guonan Ma, 2007. "Who Pays China's Bank Restructuring Bill?," Asian Economic Papers, MIT Press, vol. 6(1), pages 46-71, Winter.
    6. Guorong Jiang & Robert McCauley, 2004. "Asian local currency bond markets," BIS Quarterly Review, Bank for International Settlements, June.
    7. Garreth Rule, 2011. "Issuing central bank securities," Handbooks, Centre for Central Banking Studies, Bank of England, number 30, April.
    8. Guonan Ma, 2006. "Sharing China's Bank Restructuring Bill," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(3), pages 19-37, May.
    9. Barry Eichengreen & Pipat Luengnaruemitchai, 2004. "Why Dones't Asia have the biger bond markets," Working Papers 242004, Hong Kong Institute for Monetary Research.
    10. Corrinne Ho, 2008. "Implementing monetary policy in the 2000s: operating procedures in Asia and beyond," BIS Working Papers 253, Bank for International Settlements.
    11. David G Fernandez & Simon Klassen, 2006. "Choice of currency by East Asia bond issuers," BIS Papers chapters, in: Bank for International Settlements (ed.), Asian bond markets: issues and prospects, volume 30, pages 129-142, Bank for International Settlements.
    12. John Hawkins, 2005. "Globalisation and monetary operations in emerging economies," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 59-80, Bank for International Settlements.
    13. M S Mohanty & Philip Turner, 2006. "Foreign exchange reserve accumulation in emerging markets: what are the domestic implications?," BIS Quarterly Review, Bank for International Settlements, September.

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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