It may be carnage out there but the important thing is to have a Plan, with a capital P. Europe and the UK each have one; the US has been through several. Now Asia, home of the strongest banks and most trashed markets, wants one too. It is hard to see any one plan meeting the need of such a diverse group of countries. Asia lacks a common currency, capital market and even growth trajectory. The half-baked plans hatched in the wake of the Asian financial crisis of 1997-98 have little relevance today. Then, the big fear was currency runs.
Today, with an aggregate $4,400bn parked in Asian central banks, the region has ample firepower to defuse that particular risk. For the few central banks with smaller kitties, bilateral agreements – say, with China – would be simple enough to implement. Precedent for this exists: Saudi Arabia has deposited funds in Lebanon’s central bank. And China can point to Africa to show that financial assistance, in the form of soft loans, can bring political and economic benefits.
Yet capital flight is still an issue. Foreigners own one-third of Asian stock markets and heavy selling has contributed to currency weakness. Hence moves to dust off the Chiang Mai initiative, under which Japan, China, South Korea and 10 south-east Asian countries agreed to help each other out in the event of destabilising global capital outflows.
More ambitiously, policymakers want to revive long-mooted plans for an Asian bond market. As ever, that will be easier to talk about than to achieve. Money does not flow easily round Asia, due to capital controls and the fact that almost all transactions between Asian currencies are executed in dollars. All the noise about a common plan is a sideshow. If push comes to shove, expect Japan and China to foot the bill.
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