Constraints to internationalization of Asian currencies and the way forward
Let me conclude by flagging five issues. First, as I have already outlined above, a number of recent studies on integration of Asian financial markets have, based on empirical analysis, concluded that regional integration of Asian financial markets, both equity and debt markets, have progressed over the years but is still incomplete and there is a lot of divergence in the level of integration. China has been making definite moves, but there is hardly any integration in the rest of Asia, though spillovers from international markets are increasingly being felt in other Asian markets, including India, which is indicative of growing integration of the Asian markets with global markets. Apart from local factors such as credit or liquidity risks in some Asian economies, the divergence and the lack of progress in financial market integration can be attributed to several factors, particularly the failure to harmonise standards in the regions' capital markets.

Second, currency internationalization, which entails market liberalization, requires putting in place regional financial market infrastructure that includes a regional system of clearing and settlement, regional credit guarantee institutions, hedging facilities, and regional credit rating agencies to foster cross-border investments. This will also need to be accompanied by the harmonisation of legal and regulatory systems, market practices, rating standards, accounting and auditing practices, and withholding taxes on bond coupon payments across countries in the region. Additionally, greater internationalisation of Asian currencies would require existence of well developed and deep forex markets with diversified forex hedging instruments, which will facilitate issuance of foreign bonds in domestic markets and local currency bonds by foreign