Endnotes

¹The coordinated portfolio investment survey of the IMF is analyzed inter alia by Bae et al. (2006); Eichengreen and Luengnaruemitchai (2006a); Kim, Lee, and Shin (2006); and Lee (2006).

²This could account for the finding of Eichengreen and Luengnaruemitchai (2006a) that, in some specifications, an Asian dummy enters with a positive coefficient, signalling more holdings of Asian bonds by Asian investors than one would expect from the gravity model of size and distance. See also McCauley and McGuire (2006).

³This commentary is not included in the electronic records usually relied on by the BIS for its compilation of international bonds.

⁴Eichengreen and Park (2005) challenge the reliability of these data, but see Schmidt (2004, p. 5) and the market participants quoted therein: “Asia's moderate new-issue levels were easily mopped up by a massively improved liquidity position in Asia's banking sector. While most immediate post-crisis offerings still saw the traditional price leadership from US investors, an increased number of more recent issues have seen Asian participation in excess of 50% on the back of a ferocious appetite from the banking sector as well as rapidly growing asset-management and insurance industries.”

⁵Underwriters of international bonds issued by East Asian borrowers between April 1999 and August 2002 were headquartered by region as follows: North America, 54%; Europe, 29%; and Asia, 17% (7% if HSBC and Standard Chartered are considered European). These observations are consistent with claims that international firms take the leading position in Asian bond deals of Park and Bae (2002) and Eichengreen and Park (2005: 61–68). But even before the introduction of the euro, US firms lead underwrote 54% of international dollar issues by all non-US borrowers (McCauley and White, 1997: 340), suggesting that the US role in Asian issues was not atypical. For the competitive challenge of global underwriters after the introduction of the euro, see Santos and Tsatsaronis (2003).

⁶In June 2002, BIS consolidated banking statistics showed that about a fifth of the consolidated international claims of banks in Hong Kong, Singapore; and Taipei,China were on borrowers residing in emerging markets in Asia-Pacific and Hong Kong SAR and Singapore versus 74% against industrial countries. The equivalent percentages for Japanese banks were 9% and 77%. Euro area banks' cross-border claims on the euro area were 45%. See Eichengreen and Park (2004), who supplement the BIS data then available with Korean data to contrast the low level of integration in Asia with that of Europe. Given the rapid integration of the money market in the euro area after the introduction of the euro in 1999, however, it would seem more appropriate to compare the observed integration of banking markets in Asia with that in Europe before 1999.

⁷As with the bonds above, the analysis relies on the primary market distribution. With the growth of loan trading in Asia with standards set by the Asia Pacific Loan Market Association, subsequent secondary market activity may leave a larger share of syndicated loans for regional borrowers in the hands of regional banks.

⁸This assessment of relatively closed local currency bond markets does not take into account the possibility of systematic positioning in them by non-residents through derivatives. Only in Korea can some ongoing measure of such positioning in the Korean Treasury bond futures be taken. Elsewhere positioning in interest rate swaps, cross currency swaps, and longer dated foreign exchange swaps/futures, including nondeliverable ones, generally elude measurement. The results of the April 2007 central bank triennial survey of foreign exchange and derivative market activity will be closely scrutinized for evidence of the development of fixed income derivative markets in the region.

⁹US investment in bonds issued by German or Japanese obligors, by contrast, mostly took place in domestic currencies, with the share of euro and yen holdings, respectively, at two-thirds and three-quarters at end-2005.

¹⁰Ito (2003, p. 210) described the default of Argentina as a “cold shower.”

¹¹The liquidity advantage of the US dollar markets may to some extent account for the lack of recovery of issuance by East Asian issuers in the yen markets. For a Japanese life insurer, it may make more sense to buy a Korean dollar bond with an active secondary market and to asset swap it into yen. This is a superior transaction to buying the same issuer's yen bond if the latter would trade with substantially less liquidity. If, for instance, the insurer wanted to take profit on the Korean bond, it might be able to sell the dollar bond and unwind the dollar/yen cross-currency swap at lower cost than selling the yen bond of the same issuer. Schmidt (2004) notes a related disadvantage of the Tokyo market: defaulted issues are worth less because the creditors are left to negotiate one-by-one.

¹²From the standpoint of cooperation among central banks in managing reserves, however, ABF1 can be seen as going beyond practice in the Eurosystem. Although there a much larger sum of reserves are legally pooled, and arrangements exist for a further call to pool still more reserves, day-to-day management of the reserves is housed with the national central banks, although these are constrained to a common benchmark and other limits on discretionary management.

¹³See EMEAP (2006). Treatments by Park (2006, pp. 180–1) and Lejot, et al. (2006) are unreliable.

¹⁴Compare Oh et al., 2004.

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