Academic journal article Journal of International Affairs

The Impact of Technology on Financial Development in East Asia

Academic journal article Journal of International Affairs

The Impact of Technology on Financial Development in East Asia

Article excerpt

Financial institutions are rapidly increasing their use of technology to streamline operations, expand trading activities, improve service and minimize risks. In similar fashion, financial markets in East Asia are rapidly developing in breadth and depth to meet this challenge. The development of these markets requires not only new products, new players and global rules, but also a robust financial infrastructure that ensures efficient, secure and timely clearing, settlement and payment of financial transactions. Technology has been a major contributor to the development of financial markets. Until recently, growth in the volume of financial transactions was constrained by the physical burden of paper-based transactions and the capacity to communicate information. However, once information could be reduced to electronic form, large amounts of financial information as well as value could be processed and transferred across markets.

By linking local markets through networks, technology has created the global market. It has flattened the hierarchy of business by cutting out inefficient layers and middlemen, so that the producer can reach the consumer directly. It has also "empowered" the individual consumer and producer by increasing his access to information, his capacity to process that information and his capacity to reach out directly to other consumers and producers almost without restraint.

Towards this end, Asian central banks are beginning to introduce Real Time Gross Settlement (RTGS) inter-bank payment systems as the cornerstone of a modern electronic financial system. At the same time, the stock exchanges, futures markets and debt markets are also adopting modern clearing and settlement systems using the latest computer and telecommunications technology As global technology standards and market practices begin to converge, technology has become available to link domestic markets together to facilitate seamless trading in financial instruments.

Yet many cross-border links between Asian financial markets are indirect and often inefficient. An Asian Monetary Network--a "system of systems" that links market participants internationally--is needed to build the intra-regional market infrastructure of the 21st century. This innovation would greatly enhance central and commercial bankers' efforts to eliminate systemic risk--the risk that failure of one party in a payment system will cause the failure of other parties to meet payments. It will also reduce liquidity, credit and Herstatt risks.(1)

One such emerging network within this framework is the move to link RTGS systems so that financial transactions can eventually be conducted on a payment versus payment (PvP) and delivery versus payment (DVP) basis. This would reduce and eliminate many of the payment system risks currently inherent in the existing systems. From the perspective of a central banker, the overriding policy concern is to ensure that these inter-bank crossborder exposures are fully understood and that effective steps are being taken to reduce and even eliminate them if it is possible and cost-effective to do so. The other emerging network within the Asian Monetary Network is AsiaClear, the concept of linking Asian debt clearing and settlement systems.


Asia is still largely a cash and paper-based payments society, with Japan being very much in the vanguard of using electronic payment systems. At last count, there were roughly 150,000 Automatic Teller Machines (ATMs) and 250 million credit cards in eight East Asian economies, of which 125,000 ATMs and 225 million credit cards were in Japan. In China, the number of ATMs and credit cards has risen to 12,000 and 20 million respectively, with an additional 100 million cash dispenser cards. But transactions are still paper-based, with an average of 540,000 checks valued at U.S. $5 billion cleared daily while electronic payments amount to 12,000 transactions valued at U. …

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