In fact, a definitive framework for analyzing capital account sustainability would be most helpful for emerging market members in their own assessments of their vulnerabilities to capital flow reversals. I think this capital account sustainability framework is important, given the Fund’s mandate on the balance of payments and the recent episode of capital account crises in emerging markets. The second point I want to raise is that the Fund should look more positively at the progressing efforts by members to increase their own immunity against the risks of financial crisis and contagion by engaging in various self-insurance activities. These activities include (1) strengthening domestic policies, institutions, and data transparency which have led to greater flexibilities in dealing with shocks, (2) improving external positions by running current account surpluses, reducing external debt, and holding larger international reserves, (3) being more careful with capital account liberalization with greater willingness to use prudential and capital account measures to check excesses and to deter speculative short-term capital flows; and (4) engaging in regional cooperative efforts, such as the Chiang Mai Initiative in East Asia, to undertake collective regional surveillance and set up liquidity facilities that can be drawn in the case of emergency. To me, these developments reflect the genuine desire by regional policymakers to work together towards a common goal of reducing the likelihood of the next crisis. The Fund can look more positively at these developments as they contribute to raising global capabilities in preventing and dealing with financial crises.
Philipp Hildebrand: The Swiss National Bank’s monetary policy strategy in the financial crisis Summary of a speech by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the University of St. Gallen, St. Gallen, 23 March 2010. The complete text in German can be found on the Swiss National Bank’s website (www.snb.ch). *  *  *  To contain the financial crisis, central banks all over the world have chosen to take advantage of the room for manoeuvre afforded by their monetary policy strategy. The major central banks were only able to act in a flexible way – at least in part – due to their high degree of credibility with regard to their goal of pursuing price stability. The monetary policy strategy of the Swiss National Bank (SNB), too, has made it possible for the Governing Board to take conventional and unconventional measures to counter the crisis. The SNB’s approach has proven viable in the crisis. But this does not mean that we can sit back now. We must first find ways to withdraw smoothly from the measures taken to contain the crisis. In addition, we need to be sure that the Swiss economy is back on a sustainable growth path. After all, the crisis has shown that imbalances in the global financial system can occur even in an environment of price stability and macroeconomic stability. The main way to counter imbalances in the financial system is through better regulation.