Capital Outflows, Sovereign Wealth Funds, and Domestic Financial Instability in Developing Asia
Park, Donghyun | October 2008
Abstract
Sovereign wealth funds (SWFs) are emerging as developing Asia’s main policy
tool for handling the region’s excess foreign exchange reserves. SWFs represent
a strategic shift of excess reserves from low-risk, low-return investments to
high-risk, high-return investments, and are subject to a wide range of downside
risks. The underlying nature of Asia’s reserves, which are the consequence of
the central bank’s purchases of foreign exchange, means that those reserves
have counterpart liabilities in the commercial banks that form the backbone of the
region’s financial systems. This suggests that the realization of SWFs’ downside
risks may have serious adverse effects on the region’s domestic financial
stability. The broader implication is that the transformation of Asia into a major
exporter of capital raises the possibility that capital outflows can also be a direct
source of financial instability in the region.
Citation
Park, Donghyun. 2008. Capital Outflows, Sovereign Wealth Funds, and Domestic Financial Instability in Developing Asia. © Asian Development Bank. http://hdl.handle.net/11540/1786. License: CC BY 3.0 IGO.ISSN
1655-5252
Keywords
Trade Finance
Rural Finance
Regional Development Finance
Public Financial Management
Public Finance
International Finance
Intergovernmental Finance
Financial System
Financial Flows
Financial Assets
Finance And Trade
Trade Finance
Local Finance
International Monetary Relations
Local Finance
Banks
Capital Market
financial statistics
Foreign trade
Municipal government
Metropolitan government
International banks and banking
Capital movements
Central banks and banking
Bills of exchange
Swaps
Banks and banking
Stock exchanges
Market
Exchange
Balance of trade
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Citable URI
http://hdl.handle.net/11540/1786Metadata
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