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Repurchase agreements hold strong potential for Asian economies

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A lone person rides an escalator in the Pudong district, China's financial hub, in Shanghai.   © Reuters

The development of Asian markets for repos would help deepen the region's capital markets and benefit its real economy. Repos, or repurchase agreements, are essentially loans secured by collateral such as high-quality sovereign bonds. The repo seller gets an immediate infusion of cash while committing to repurchase the asset at a higher price in the future, with the difference representing implied interest.

     Repos have historically played a much smaller role in Asian financial markets than in Europe or the U.S. However, policymakers have gradually realized the importance of repo markets and elevated them as part of financial regulatory reforms following the global financial crisis. This coincided with the wider shift from unsecured to secured forms of financing that had been underway in markets for some years and helped encourage the collateralization of risk.

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