Working Together for a Better Future Asian Central Banks

The Asian Financial Crisis

The Setting of The Stage Before the Crisis (Alan Shapiro, 2005) Export Oriented Foreign Currency Denominated Debt Government Directed Capital Allocation Overvalued Currencies

The Experience and Aftermath (Alan Shapiro, 2005) Chinese yuan against USD (25 %) Waves of currency selling ( 40-80%) Huge debt in dollars Capital flight (stock market crashes) Banking systems disrupted Economies contracted

Lessons Learnt (Frederic Mishkin, 1999) Central Bank lender of last resort International capital flows Foreign Currency Denominated Debt International Foreign Reserves

Source: IMF, World Economic Outlook, October 2008

From the Asian Crisis to the Sub-prime

The Interval (IMF, 2008) Relatively Low Exchange Rates Current Account Surpluses (Oil & Exports) Large Accumulation of Foreign Reserves

Source: Bank of Canada Source: Sovereign Wealth Fund Institute, IMF, and other Governmental Sources

Roads to the Sub-prime Mortgage Crisis (IMF 2008) Foreign Reserves Sufficient Cushion against External Financial and Economic Shocks Transferring Assets to Sovereign Wealth Funds ($2-3 trillion)

Largest Sovereign Wealth Funds by Assets Country Fund Name Assets $Billion Origin UAE - Abu Dhabi Abu Dhabi Investment Authority $627 Oil Saudi Arabia SAMA Foreign Holdings $431 China SAFE Investment Company $347.1 Non-Commodity China Investment Corporation $288.8 Singapore Government of Singapore Investment Corporation $247.5 Kuwait Kuwait Investment Authority $202.8 National Social Security Fund $146.5 Non-commodity China - Hong Kong Hong Kong Monetary Authority Investment Portfolio $139.7 Temasek Holdings $122 Qatar Qatar Investment Authority $65 Brunei Brunei Investment Agency $30 Malaysia Khazanah Nasional $25 Source: Sovereign Wealth Fund Institute

Financial Markets Equities Sovereign Debt Corporate Debt Real Estate Infrastructure

Evolving Central Banks (Frederic Mishkin, 2000) Monetary Policy Open Market Operations, Overnight Policy Rates, Reserve Requirements, Discount Rates Financial Markets Temasek Holdings UBS Abu Dhabi Investment Authority Citigroup

Contributing Factors to the Crisis (Newsweek 2008) Besides Mortgage Bankers, Wall Street, Credit Rating Agencies The Federal Reserve China, Japan and other Sovereign Wealth Funds

Source: Bloomberg, The Star

Challenges in the Next Society

Virtual Banking and Virtual Money The Next Society BRIC Countries Virtual banks - increasing significant (Mishkin F.S., 2007) E-commerce - virtual money (no physical existence) (Peter F. Drucker, 2002) Virtual Banking and Virtual Money

The Next Society Islamic Financing Aging Population Standard and Poor’s estimates that around $750 billion of assets – shariah-compliant management Islamic Financing Guardian (21 July, 2009), global population of 65 and over is set to outnumber children under five Aging Population

Opportunities – The Road Ahead Worker productivity Financial centre High growth (China and India) Tele-communication Transportation Public Transport Trade Infrastructure

Opportunities – The Road Ahead Agriculture and Commodities

Opportunities – The Road Ahead Decline in manufacturing (Peter F. Drucker, 2002) Knowledge products such as the education - tripled in cost Education Islamic Banking Hub Petro-dollars Islamic Banking

Facilitating Development Supporting commercial banks Helping companies (involved in these industries) to raise capital Bonds Equity

Question and Answer Session