Hong Kong Monetary Authority Chief Joseph Yam said on Thursday that financial protectionism was more dangerous than trade protectionism.

"Unlike trade protectionism, financial protectionism can spread quickly, possibly leading to a sharp reversal of capital flows, with destabilizing consequences for monetary and financial stability," said Yam in an article published on Thursday.

Globalization of financial markets, made possible by financial liberalization in individual economies, has been instrumental in the growth and development of the global economy, making the allocation and use of financial resources internationally more efficient, he said.

Many developing economies were therefore dependent upon external finance that was often mobilized by financial institutions in the developed economies, said the chief.

If these financial institutions were prevented by law or government policies from lending overseas so that more funds could be made available for domestic borrowers, external finance for the developing economies might dry up, he said.

"The results could be catastrophic," he warned.

He pointed to the fact that many developed economies were also dependent upon external finance, but at a rather more macro level, because they ran large current-account deficits.

The sources of capital inflow for these developed economies were principally the developing economies that had accumulated considerable foreign assets because they ran current-account surpluses, Yam noted.

"Financial protectionism is something that all of us should work towards preventing," said the chief.

(Xinhua News Agency February 20, 2009)