(RTTNews) - Australia’s exchange rate flexibility has played a key role in mitigating global financial crisis, Reserve Bank of Australia Assistant Governor for Economics Philip Lowe said Monday.

“Given the inevitable uncertainty in the world and the large swings that can occur in financial markets, having the flexibility to adjust to changing circumstances is critical,” Lowe said in Perth. In countries with higher trade shares than Australia’s, the benefits from a freely floating exchange rate may be considerably less.

More generally, the central banker said, low levels of public debt and a credible monetary policy framework provide policy makers with flexibility to respond quickly and effectively to changing circumstances. Flexible labor and product markets are an important part of the equation. “In a number of these dimensions, the Asian economies rate highly, with their flexibility being an important factor underpinning their dynamism of recent decades,” Lowe noted.

Moreover, he said, if countries are to live comfortably with extensive financial markets that are integrated into the global system, then appropriate regulatory arrangements are essential. He asserted that policy makers need to take a holistic approach - being prepared to respond to growing risks in the system as a whole, rather than risks in just a single institution or a particular market.

“To be sure, this crisis has had very large ramifications for the global economy - including the economies of Asia - but we have not seen a crisis in the financial systems of Asia,” Lowe said. “There have not been collapses of large financial institutions in Asia and banks have not needed to be rescued by governments.”

In short, he said, the fact that in Asia there is less reliance on financial markets, and more on financial institutions and that central banks have large holdings of foreign reserves, have contributed to the resilience of the region’s financial systems.

Lowe said the resilience in the financial system can be achieved in different ways and there is no “one-size-fits-all” solution. “A country’s history is an important influence, as is its openness to trade, the level of per capita income, and the overall size of the economy,” he said. “In Australia’s case, for example, few people would argue that a return to the highly regulated and less globally integrated financial environment of the 1970s would be the best way to manage these risks.”

The central banker said having a strong and resilient financial system that is able to support the ongoing expansion of the real economy is important. “Over recent times, both Australia and the countries of Asia have had more success here than have many others,” he concluded.

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