These traditional anchors of understanding have been swept away by the vicissitudes of capital movements, with currencies often moving far out of alignment of the traditional fundamentals. Moreover, it now appears that expectations and even momentary reactions to the day’s news are often more important in determining fluctuations in capital flows and hence it serves to amplify exchange rates volatility.
Furthermore, the liquidity impact of capital flows has become an even more important problem for monetary management than it was the case hitherto. The globalisation of financial markets, even if  BIS Review 56/2006  5  imperfect, has now magnified the impact of monetary policy actions taken in one country on others.