Cross-Border Asset Pledgeability for Enhanced Financial Stability

34 Pages Posted: 7 Oct 2019

Date Written: April 29, 2018

Abstract

Even with the sizable FX holdings and good credit ratings of its top assets, Asia remains vulnerable to various shocks. This paper highlights the limited cross-border asset pledgeability as a significant factor for the lingering vulnerability in Asia. The dichotomy in asset holdings between pledgeable FX and non-pledgeable domestic assets in major economies in Asia has been the source of increasing stabilization costs as well as weakened market momentum in the region. Specifically, the peculiar feature of asset holdings in Asia reflects seriously deficient cross-border asset pledgeability that is left unaddressed. Asset pledgeability contributes toward financial stability via three channels: capital market development by recognizing the role of collateral, increased shock absorption capacity via collateral management, and the newly activated safe asset provision. Therefore, it is important to go beyond the usual market development strategy and expand the overall asset pledgeability in the region that has remained unduly depressed.

Keywords: cross-border collateral, pledgeability, safe asset shortage, financial stability

JEL Classification: E40, E44, E50, F30, F34, G15

Suggested Citation

Choi, Gongpil, Cross-Border Asset Pledgeability for Enhanced Financial Stability (April 29, 2018). Available at SSRN: https://ssrn.com/abstract=3170635 or http://dx.doi.org/10.2139/ssrn.3170635

Gongpil Choi (Contact Author)

Korea Institute of Finance ( email )

4-1 Myung-dong 1-ga
Seoul 100-021

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