Region's forex hoard worries HKMA chief

The higher they rise, the harder they may fall, warns Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong in a commentary on the rapid accumulation of foreign currency reserves by Asian central banks.

'It postpones the inevitable adjustment [in the global imbalance] and may make it a more destabilising one,' said Hong Kong's de facto central banker in his regular weekly 'Viewpoint' column yesterday.

Current levels of financial integration in the region did not reflect increasing trade and economic relationships and gave some cause for concern, Mr Yam said.

One of these concerns was the rapid increase in foreign reserves in the region since the Asian financial downturn, he said. Although this gave some comfort to the authorities, he said, having too much of anything could be problematic.

Between them, the top four holders of foreign currency reserves - Japan, the mainland, Taiwan and South Korea - held about US$2.02 trillion in reserves, compared with US$503.2 billion at the end of 1998.

'Holding foreign assets that earn a return lower than the cost of sterilisation is an unhappy feeling, particularly with the long-term bond yields hanging out there waiting for a trigger to work itself out. The same applies to the possibility of diversifying, say, 10 per cent of what you have and seeing the value of the 90 per cent fall sharply as a result,' he said.