New York Federal Reserve President Timothy Geithner Wednesday argued for greater exchange-rate flexibility in emerging Asian economies as part of a path to economic stability.
In a speech on "Reflections on the Asian Financial Crisis" at the San Francisco Fed, Geithner said Asian economies were better able to weather volatility now than when a financial meltdown engulfed the region in the late 1990s.
"The countries directly affected by the crises a decade ago are fundamentally stronger. The balance sheet weaknesses have been transformed into strength," Geithner said in comments prepared for his speech today, according to an advance copy obtained by Reuters.
Still, while "acute, self-reinforcing panic" may no longer be in the cards, Asian countries still have a way to go, especially on currency reform, he said.
In particular, Geithner cited problems with countries that try to maintain a currency regime in "the soft middle" between fixed and purely floating.
"Flexible exchange-rate regimes make more sense for emerging market economies," he said.
Policies designed to insulate an economy from capital shocks, such as fixed exchange rates or selective capital controls, bring additional risks "that might undermine future growth or magnify vulnerability to future financial volatility."