Korea Institute of Finance: Cross-border Collateral Constraints in Asia and its Implications

Gongpil Choi
Asian Prime Collateral Forum

This paper investigates various constraints that hinder cross-border collateral utilization in ASEAN+3. Given the size of economy, payment and liquidity needs, and the challenges to adapt to changing conditions in Eurodollar market, Asia needs comprehensive collateral-based plumbing in addition to various liquidity facilities by the authorities. Given the embedded constraints for collateral that are tied with highly segmented jurisdictional paradigms in the region, collaborative joint efforts to improve market infrastructure, regulation, tax issues are necessary to mobilize Asia’s collateral capacity. Above all, central banks with heavy footprints in collateral market need to take charge in the multipronged approach to ease massive constraints by providing forward-looking collateral market guidelines for cross-border transactions. We also suggest a possible public-private rewiring strategy to overcome constraints to formulate a tiered collateral framework to expedite cross-border financial plumbing in collaboration with the ICSD and CSDs. Further, massive constraints that determine Asia’s cross-border asset pledgeability implies the need for a dedicated institution to improve comprehensive financial plumbing issues going forward.

The full paper is available at https://www.kif.re.kr/kif3/eng/publication/pub_detail?mid=210&nid=949&sid=949&vid=6335&cno=285162

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