In general, therefore, low level of system flexibility at the current juncture is a major constraint on economic agents and financial market participants in responding to highly accelerated financial liberalisation and dealing with its downside risks. Third, the adequacy of foreign exchange reserves is often cited as a consideration for significantly accelerating the pace of financial liberalisation.
Foreign exchange reserves are, in the final analysis, a cushion to withstand both cyclical and unanticipated shocks. Therefore, reserve adequacy may be a necessary condition but not a sufficient one for speeding up financial liberalisation.