At the height of the global financial crisis, emerging economies experienced sudden capital outflows and a subsequent economic crisis, in spite of their strong economic fundamentals. This was despite the fact that the credit crunch originated in advanced economies. These open emerging countries were reminded again of the importance of maintaining the foreign exchange soundness of financial institutions and of curbing excessive borrowing in foreign currency in normal times. This approach will enable them to manage better the threats to financial stability that arise from sudden reversals in capital flows. Within the G20, a consensus was reached on the need to strengthen prudential regulation in the banking sector. Consistent with this, the Korean government introduced new measures to mitigate potential systemic risks arising from sudden imbalances in the supply and demand for foreign exchange, while staying within the broad framework of an open and liberalized capital market. In this seminar, Dr. Park will discuss trends in and characteristics of capital flows to Asia. He will also review the policy responses of selected Asian economies to enable them to cope with these inflows and will draw some policy implications for managing the risks associated with large capital inflows.

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