Rebalancing Economies in Financially Integrating East Asia

Since the Asian Financial Crisis (AFC) of 1997–98 large current account surpluses have accumulated in the countries of Asia and the Pacific with corresponding deficits elsewhere. The sharp plunge in global trade volumes during the GFC has highlighted the need for ‘rebalancing’–focussing more on domestic sources of economic growth than on exports in some Asian economies. The key objective of the book is to elucidate the economic structures and policies that give rise to current account surpluses and imbalances and consider what policy adjustments could change them.

The book offers new dimensions and important extensions to the existing literature on ‘rebalancing’ and provides alternative and arguably more fundamental solutions to address imbalances. Much policy debate focuses on the role of prices (i.e. exchange rate misalignment) in encouraging exports and implies that changing relative prices, by revaluing Asian currencies, will be the key to correcting imbalances. This book begins from the premise that the imbalances are a macroeconomic problem that reflects a mismatch between savings and investment in the surplus countries. Then, it examines exchange rate policies adopted by countries in the region and finds that part of the explanation for their currency strategy lies in their perceived need to build foreign exchange reserves to provide a buffer in case of instabilities.

The book helps to provide insight into whether there are other possibilities for countries to insure against economic volatility by more actively and openly engaging with international capital markets.

Jenny Corbett is a Professor in the School of Economics and Government at the Australian National University and is a specialist in comparative economic systems, financial economics, international economics, international finance, and the government and politics of Asia and the Pacific. She is currently working on projects involving banking restructuring in Japan and post-crisis Asia and electronic finance in the Asia-Pacific region.

Dr Ying Xu is a Postdoctoral Research Fellow at the Crawford School of Economics and Government at the Australian National University. Her research has focused on banking, financial development, and economic growth. She is currently leading a research team on foreign banks and its role on financial shock transmission in the Asian region. The research project is supported by Centre for International Finance and Regulation, a centre of excelence funded by the Australian government.