I have been in Asia for the last week, first at a conference in Korea on the post-mortem of the 1997-98 Asian crisis and the challenges faced by Asia in the future, now in Kyoto Japan where the 40th Annual Meetings of the Asian Development Bank are taking place. 2007 is also the 10th anniversary of the 1997-98 Asian financial crisis. I have taken the occasion of this anniversary to write a new longish paper titled "Asia is Learning the Wrong Lessons from Its 1997-98 Financial Crisis: The Rising Risks of a New and Different Type of Financial Crisis in Asia" (available in full for premium RGE subscribers) that I have presented in Korea and Japan.

As the title suggest I argue that Asia has learned the wrong lessons from its 1997-98 crisis. While 2007 looks in many ways very different from 1997 when East Asian currency and financial markets were collapsing and their economies were entering in a severe recession caused by the currency and financial crisis, not all is clear for East Asia today in spite of high growth and buoyant financial markets.

The paper argues that the current East Asia financial and currency policies represent a return to fixed exchange rates as most - but not all - of the policy makers in the region are aggressively preventing a necessary currency appreciation via massive and growing amounts of forex reserve accumulation. Such reserve accumulation has been at the rate of $450 billion in 2006 alone and now at an even faster rate in 2007. By now the stock of forex reserve in Asia is over $2.5 trillion and rising rapidly.

These policies are however creating -  via partially sterilized intervention - a massive growth of monetary base and of credit in Asia that is feeding a variety of asset and financial bubbles as well as leading to goods inflation in some countries; these bubbles are dangerous and likely to lead to a financial bust over time.

These currency policies - effectively what has been referred to as the Bretton Woods 2 regime of fixed rates in Asia - have also made East Asia more dependent now than ever before on the US business cycle and on growth developments outside of Asia. Thus, China and Asia are now seriously vulnerable to a US hard landing that now looks more likely.

These Asian currency and financial policies have also contributed to global current account imbalances, to excessive global liquidity, to the bubbly conditions in a variety of global - not just  Asian - asset markets and to a serious underpricing of risk in global financial markets.

Thus, Asia is fighting today the last war as vulnerabilities in Asia are very different today from those that led to the 1997-98 crisis. Asia instead is not addressing the financial vulnerabilities created by its currency policies that risk to lead - with or without a US hard landing - to a new and different type of financial crisis in Asia, one triggered by excessive liquidity, excessive credit growth and asset bubbles in many financial markets.