Asia in the G20: Monetary and Financial Considerations

Abstract

The global financial crisis (GFC) has once again made it apparent that sound macroeconomic and financial fundamentals are necessary but not sufficient conditions for a country to remain immune from capital account shocks. Openness to trade and financial flows offers significant benefits in terms of, for example, enhancement of product competition, productivity improvements, variety in goods and services, risk diversification, but it also leaves a country vulnerable to external shocks of various types. The challenge for policymakers is to put in place adequate and effective financial safeguards against such shocks. This is especially important for highly open economies in Asia that have limited domestic social safety nets.