Country-specific circumstances and management capacities have to be taken into account to come up with a varied policy mix involving foreign exchange rate adjustment, market intervention, monetary and fiscal policies and capital flow controls.7 In the medium and long term, economies should consider following a three pronged approach consistent with individual local circumstances: firstly 1) capacity-building to cope with volatile capital flows, secondly 2) strengthening macro-prudential regulation, and thirdly 3) enhancing international financial cooperation.8 1)  Individual countries’ capacity building to cope with volatile capital flows  With growing economic integration, the effects of individual economies’ conditions on other economies are growing, and the importance of each economy’s stability has increased further as a result.
With a view to stability, sound macro-economic policies are the first line of defense in reducing economies’ vulnerability to external shocks. Events that might trigger a crisis should be forestalled preemptively by avoiding a build-up of short-term external debts and maintaining an appropriate level of foreign reserves.