Edited by Koichi Hamada, Beate Reszat and Ulrich Volz
5. Currency denomination in Asian bond markets Eiji Ogawa and Junko Shimizu1 INTRODUCTION 5.1 One of the main features of financial crises, especially those that occurred in the 1990s around the world, is that they tend to spill over from one country to neighboring countries. This was the case during the Asian currency crisis of 1997–98, when contagion throughout the regional economies was fuelled by strong trade linkages among the East Asian countries. The Asian currency crisis brought about a strong awareness of the necessity for regional cooperation, and, accordingly, several policy proposals have been developed for the strengthening of regional financial cooperation. Kuroda and Kawai (2003) proposed a more effective surveillance process and considered the option of creating a common pool of foreign exchange reserves in order to allow flexible financial support during times of crisis and contagion, which would also reduce the problem of moral hazard. The monetary authorities in East Asian countries in 2000 established, and recently have augmented, the Chiang Mai Initiative, a swap agreement meant to prevent future currency and financial crises by boosting short-term liquidity.2 One approach to strengthening regional financial markets and avoiding future financial crises in East Asia that we feel deserves more investigation is the call for a more efficient regional bond market. Ever since the Asian currency crisis, East Asian monetary authorities have recognized the underlying problems caused by a double overdependence on the banking sector in their financial systems on the one hand and on the US dollar...
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