Drop forex and focus on ‘real economy’, Asian banks urged

Drop forex and focus on ‘real economy’, Asian banks urged

Drop forex and focus on ‘real economy’, Asian banks urged

Banks in Asia are not doing enough to connect their private clients to the infrastructure investment opportunities the region urgently needs to fill its massive US$8tr shortfall, according to Emerging Markets which quoted experts at a recent meeting of the Asian Development Bank (ADB) in Frankfurt.

The publication said new radical approaches were needed to finance Asia’s vast infrastructure needs that go well beyond simply finding the money.

While the role of development banks in financing Asia’s US$8tr infrastructure need is indisputable, delegates at the ADB annual meeting in Frankfurt argued that more progressive technology was required to connect key investors to infrastructure projects.

“The question is, how to get the private sector to join,” said Ben Shenglin, professor of banking and finance and dean of the academy of internet at Zhejian University, to Emerging Markets. “They’re not coming and if you look at banks, they’re not doing as much as we think to stimulate the real economy.”

Shenglin said that banks needed to shift their focus away from activities like forex trading, which he argued was not that important to the real economy, and start focussing on connecting their private clients to real economy investment opportunities.

“...what we need to do is focus on connecting savers with investment opportunities. In the age of the sharing economy, we’re not sharing opportunities.”

He argued that a connection needed to be made between the short term nature of savings and long term infrastructure requirements and that this would improve the efficiency and inclusivity of financing projects, Emerging Markets reported.

He argued that a connection needed to be made between the short-term nature of savings and long term infrastructure requirements and that this would improve the efficiency and inclusivity of financing projects.

If banks shift focus away from forex trading to funding the “real economy” as experts say they should, there could be greater capital market opportunities in Asia for infrastructure via the issue of bonds, shares and private equity.

Peter Wolff, head of world economy and development financing at the German Development Institute, said the majority of renewable infrastructure projects were not commercially viable. He argued that rather than development banks propping up the projects, the need was for policy reform to make renewable projects viable.

Such projects would offer a stronger investment proposition for investors and the need for development bank financing would be less. He also noted that the borrowing limit imposed in many countries across Asia and southern Europe would constrain the total amount of funds that could be raised.

Don’t blame Fed for capital outflows

Meantime CNBC reported that emerging market economies shouldn't blame the U.S. Federal Reserve's monetary tightening for the increasing volume of outflows of capital in the hunt for higher interest rates, quoting the director of Fitch Ratings' Asia division.

"I think it's no surprise that in a world that is increasingly globalized that emerging markets are sensitive to monetary movements globally," Mervyn Tang, director of Asia-Pacific Sovereigns at Fitch Ratings, told CNBC at the same ADB meeting.
"Now I think it's difficult to say it's the Fed's fault (if capital leaves emerging markets for a higher interest rate environment in the U.S.) because ultimately the Fed's policy is to manage price stability and its own economy."

"The best that emerging economies can do is to shore-up their public balance sheets to improve their external positions so they're not sensitive to the move of external parties," Tang told CNBC.

Tang's comments came amid increasing worries over central bank moves and their effects on an increasingly globalized economy. When the U.S. Federal Reserve announced it was to begin "tapering" its quantitative easing program in 2013, emerging markets -- to which investors had flocked when U.S. rates were low -- saw massive capital outflows and market selloffs as investors fled.

Now, as the Fed starts to slowly increase rates, many emerging markets feel powerless to prevent capital flight. Meanwhile other central banks are trying to combat very low inflation and, in the euro zone, deflation, by cutting interest rates to record lows, CNBC reported.

Photo: Asian Development Bank

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