Unifying government bond markets in East Asia

The Asian crisis of 1997 taught policymakers in the region two main lessons. First, to build up foreign reserves. Second, to develop local bond markets. When central banks in the region accumulate foreign exchange reserves from capital inflows, they also sterilise the inflows. Those with large reserves have commonly ended up issuing their own debt for this purpose after selling off government debt from their portfolios. This, however, has meant that much of the opportunity to develop the bond market has been missed. The conversion of central bank debt into government debt may be advisable even if it means "overfunding" by the government. With a single big borrower, the debt would trade in a larger and more liquid market. The article explains how this could be achieved by Indonesia, Korea, Malaysia, Taiwan (China) and Thailand.