What Is an Asian Bond Fund?

In 2002, the Executives' Meeting of East Asia and Pacific Central Banks (EMEAP) proposed the idea of establishing the Asian Bond Fund (ABF) and implemented it in 2003 and 2005 respectively. The first and second fund (ABF1, ABF2). At present, the Asian Bond Fund has become one of the most important results of Asian financial cooperation in recent years. It has positive significance for the development of the Asian bond market and the entire Asian financial system.

Asian Bond Fund

Right!

In 2002, the Executives' Meeting of East Asia and Pacific Central Banks (EMEAP) proposed the idea of establishing the Asian Bond Fund (ABF) and implemented it in 2003 and 2005 respectively. The first and second fund (ABF1, ABF2). At present, the Asian Bond Fund has become one of the most important results of Asian financial cooperation in recent years. It has positive significance for the development of the Asian bond market and the entire Asian financial system.

Since the 1960s,

The fragility of the financial system exposed by the Asian financial crisis in 1997 made East Asian economies realize that having sufficient reserve assets is a material guarantee against external shocks.

Improving investment in reserve assets includes two main elements: First, improving the investment efficiency of reserve assets, that is, using Asia s huge foreign exchange reserves to provide much-needed long-term funding for the region s economic development. Reserve asset investment in Europe and the United States bond market is not high returns; secondly, to promote the diversity of reserve assets, that is, to invest in bonds issued by Asian economies through funds, expand the diversification of Asian reserve assets and reduce the risk of reserve assets

Broaden financing channels and enhance regional liquidity

East Asia has been pursuing an "export-oriented" development strategy for many years, so the region has accumulated a large amount of foreign exchange reserves. If the district government or

In June 2002, EMEAP formally proposed the concept of the Asian Bond Fund. The basic idea is that EMEAP members each set a certain amount of foreign exchange reserves to build a track.

Through the operation of ABF1, EMEAP has a better understanding of the operation of Asian bond funds, and has established a certain basis of cooperation and mutual trust in this regard. In view of this, starting in 2004, EMEAP began to formulate the structure, initiation phase and form of the next phase of the Asian Bond Fund (ABF2), which included many creative designs.

The establishment of ABF marks a new stage of regional financial cooperation in Asia, but as a new thing, ABF faces many problems. It is obviously unrealistic to expect that historical defects such as "currency mismatch", "term maturity mismatch", dependence on the US dollar, and the immediate effect of stabilizing Asian financial markets can be changed by relying on only one ABF plan. The problems faced by ABF are embodied in the following aspects:

Asian bond-based bonds have a single currency and limited issuers

ABF is still in its infancy. All funds are denominated in US dollars instead of local currencies. This only helps the development of the Asian dollar bond market, and to a certain extent helps reduce the issue cost of Asian dollar bonds and enhance market liquidity, which is far from the original intention of establishment. Due to the actual dollarization tendency of the region, one of the purposes of developing the Asian bond market and setting up the ABF is to change the past overreliance on the US dollar. Therefore, ABF should also consider buying bonds denominated in regional currencies to further expand and penetrate the local bond market.

In addition, ABF can only invest in US dollar-denominated sovereign and quasi-sovereign bonds, and it cannot yet invest in other bonds. Even the sovereign bonds of Asian countries have generally low credit ratings, and most of them are not applicable to the low-risk requirements of foreign exchange reserves.

Small size of Asian bond funds

Compared to the US $ 674.1 billion in public bond stocks in Asian emerging market economies, the ABF's US $ 1 billion capital is far from adequate. Compared to the trillion-dollar foreign exchange bonds of Asian countries, it is even more negligible. In addition, the bond market involves a wide range, and it also involves the development of related systems and infrastructure in the securities market, which cannot be achieved overnight. With such a small scale, it is difficult to do anything, and it is difficult to activate the Asian bond market ^[1] . Judging from the scale of the ABF, its symbolic significance to financial stability in the Asian region is actually greater than its actual significance.

Asian bond fund financial market infrastructure construction lags

For ABF, Asian countries still need to make progress in terms of infrastructure and institutional construction of the securities market, including vigorously developing various institutional investors, establishing a suitable regulatory framework, and issuing reasonable and internationally consistent accounting and taxation. With the legal framework, the establishment of convenient information networks and regional rating systems and guarantee mechanisms, and gradually improving the liquidation system and liquidation standards, etc., have already constituted practical obstacles to the development of the bond market. ^[1]