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2011-01-21

Asia financial reforms

Comments on Andrew Sheng "Asia must reform financial institutions in its own image" 13/01/2011, http://www.eastasiaforum.org/2011/01/13/asia-must-reform-financial-institutions-in-its-own-image/#comments

A few comments on the post.


Firstly, the following statement may not be correct: ‘In terms of the global architecture, the dollar and the euro will remain as global reserve currencies within the next two decades at the very minimum.’

Twenty years are a very long time. The underlying reason Shen used for that statement ignores the international dynamics and the rapid shifting in world economic weight and trade. The current lack of consensus on an Asian currency or currencies is likely to be very temporary.

Secondly, the idea of using a Tobin tax for fx transactions should at least be complemented with a tax refund mechanism for non-speculative transactions after they can be proved to be, to reduce the undue impact on market efficiency of such a tax

Thirdly, the ‘too big to fail’ dilemma should not be that hard to address. Shareholders and bank and financial executives must be held to account, no matter how big a bank or financial firm is. They must be made to pay for their mismanagement and / or neglect of duties. Moral hazard issue should never be allowed. The worst outcome for a country can only be nationalisation temporarily to prevent any financial fall out. If that does occur, it would wipe out all shareholders’ value, and allow both the authorities and shareholders to prosecute company executives for their neglect of duties and or mismanagement.

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