Transcript Thailand after 2003

Dollarization in Asia
Full de-$-lization
Full $-lization
Real $-lization: price and wage in $US
Monetary and
Financial system
Payment $-lization: use $US in circulation
Financial $-lization: deposit and loan in$US
Exchange rate regime
Example
In Asia
Hard Pegged to $US
Basket Currency
Reserves 100 %US
More than x % $US
Flexible Exchange rate
Less than y % $US
Cambodia
Laos PDR. Thailand before 1997 Thailand after 1997
Macro
Economic
Problem?
Market
Failures
And
Excessive $ ?
•Regional Self-help
Mechanism
•Regional demand
management
•Macro-stability
•Dual-track policy
Double-Mismatch
Massive K-outflow
Balance-sheet problem
Bail-out,
Slow and insufficient liquidity
Thailand after 2003
Holding less $US
Promoting Asia Bond
Promoting Asia RFA
Global Imbalance
US-ROW
Observation on Inflation Rate
Before Asian Crisis
After Asian Crisis
20.0
550.0
18.0
450.0
16.0
14.0
350.0
12.0
10.0
250.0
8.0
6.0
150.0
4.0
2.0
50.0
0.0
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
-50.0
Asia
1998
1999
Asia
Western Hemisphere
2000
2001
2002
2003
Western Hemisphere
After Asian Crisis
140.0
120.0
100.0
Lao PDR
80.0
60.0
40.0
20.0
0.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
-20.0
Thailand
Lao People's Dem. Rep.
Cambodia
Degree of Dollarization in Asia
1990
1995
2000
Bolivia
71
79
85
Uruguay
80
65
72
Nicaragua
29
55
70
Peru
80
63
69
Argentina
34
44
55
Mexico
15
10
6
Lao P.D.R.
43
75
Cambodia
56
68
21
32
22
29
3
15
8
27
20
18
Vietnam
33
Philippines
Pakistan
Israel
Most of the countries in Asia
maintain high degree of
fixed to the $US exchange
rate system.
100% -- Malaysia, PR. China
Managed float -- Thailand,
Singapore, S.Korea
Philippines, Indonesia
India
Flexible rate -- Japan
Medium of Exchange
Store of Value
Home
Economy
If volatile, $ can
be a natural
medium of
exchange
(and
store of value)
Global
Economy
Home
Economy
If relatively
Stable,
Local currency
Replaces $US
And
Gain monetary
policy
Currency Mismatch; $US Loan greater than loan
to tradable sector
Home
Economy
Global
Econom
y
If Home stable, use local currency
And gain full monetary policy
If US not so stable, $US might loss
domination as a store of value,
As well as medium of exchange
Fear of
inflation
Lacking of monetary
Credibility and High Inflation
Restricting $-lization
would results in offshoring
and smaller financial
system
$-Lization
Low inflation
Persistent $-lization
How to
de-dollarize
without
side effects?
Currency Mismatch
Restricting $ debt
Lacking monetary credibility
in Insulating external shock
Limiting $ loan to
non-tradable sector
Lack of effectiveness in
controlling Inflation
What would be
the accepted
local currency assets
Which
$US asset holders
willing to
Switch to?
A Country’s Attempt
What would be the accepted
Local currency assets which
$US asset holder willing to
Switch to?
Indexed
Debt Markets
Creditability
Of the debt
issuers
High Investment
return
Equity market
Property fund
Economic
performance
An attempt to de-dollarize of an economy
might means
(temporally) capital inflows to the dollarized neighbors
A regional problem by nature
Regional
Problems
Needs
Regional
Policies
“Contagious” on the way-in to crisis
“Collective efforts” on the way-out
Regional Economic Strength
A Region’s Attempt
Real Sector
Cooperation
Regional project using domestic resources
to generate high rate of return
• to the projects
• to the regional economy
Financial
Cooperation
Collectively guarantee Indexed bond
• cross-guarantee
• two-country bond
• Regional bond
A Region’s Attempt on Regional Financial Arrangement
Economic
Surveillance
Remember the contagious effect (always)
• Peer Review
• Strong academic comments—IADB?
Collectively we have sufficient reserves
Resource
Pooling
Regional
Bond Market
(Mexico-Brazil-Venesuela-Chile-Agentina:30-25-8-8-7 %)
• Guarantee to re-lend capital in-flows from neighboring country
• Swap arrangement (Government bond in local currency
as collateral is preferable)
Local-currency denominated bonds
• Cross- investment by central banks
(accepting as reserves)
• Cross-investment by private investors