Hit by the 1997–1998 Asian financial crisis, economies in Southeast Asia adopted unconventional monetary policy measures to ride out the financial storm, and were the stronger for it, teaching a few unorthodox lessons to developed economies left reeling by the global crisis a decade later.

Central banks were initially at a loss about what to do, as share prices and asset values plunged, currencies and exports weakened, and investment capital fled—much as some central banks in advanced economies were during the global financial crisis of 2008.

In Asia, Thailand chose to recapitalize struggling banks, while in Hong Kong, China, the strategy was to buy falling stocks on the share market, which it later sold carefully back into the market, distributing the profit to every taxpayer as a bonus of some $1,000.

Public funding of bank recapitalizations in Thailand and the extraordinary purchase of equities in Hong Kong, China have elements of the unconventional monetary policy known as quantitative easing, which has received so much attention in major advanced economies in recent years.

During the Asian crisis, Western economists were skeptical about the macroeconomic benefits of government purchases of risky assets.

Since 2008, they have been far more sympathetic to the view that financial markets may not be efficient and may at times be destabilizing if left to themselves.

Read the transcript

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Read the post on ADBI’s blog

https://www.asiapathways-adbi.org/2017/09/unconventional-monetary-policy-in-the-asian-financial-crisis/

About the authors

Tamim Bayoumi is a deputy director at the International Monetary Fund.

Joseph Gagnon is a senior fellow at the Peterson Institute for International Economics.

Know more about ADBI’s work on monetary policy

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