The openness of capital accounts means that the world today is very different from that of the Bretton Woods era. Capital flows - both public and private – are very large. And, for many countries, private capital flows now dwarf official flows. Because domestic demand is no longer constrained by current national output, a current account deficit does not necessarily indicate any "fundamental disequilibrium" nor require any official help to finance. For example, New Zealand received the largest annual disbursement of any industrialised country as a share of GDP during the Bretton Woods era: 1.9% in 1967. That was associated with a current account deficit of 3.7% of GDP. Since 1990, New Zealand's current account deficit has averaged more than that, but it has had no need of an IMF  2  BIS Review 11/2006  programme to finance these deficits. Indeed, the need for official financing for industrialised countries has become redundant. 3 Many of the "imbalances" that reflect private decisions to save and invest are desirable because they improve the efficiency with which capital is allocated throughout the world. Since it is difficult to measure “equilibrium” flows of capital from one country to another, it is equally difficult to define meaningfully “fundamental equilibrium” exchange rates. As Alan Greenspan has pointed out, current account deficits and surpluses are now the norm rather than the exception.
In response to the crisis, a network of swap agreements between advanced economy central banks was established giving us the ability to provide a range of currencies to UK-based institutions. This network of swap lines should not necessarily be limited to the G7 economies. In June, the Bank of England signed such an agreement with the People’s Bank of China, reflecting the growing international role of the Renminbi. That dovetails with the possibility of establishing a Renminbi clearing bank in London and our decision to include branches of Chinese banks in our broader policy of openness to hosting foreign wholesale banking activities. Helping the internationalisation of the Renminbi is a global good, consistent with London’s historic role. But rest assured that the Bank will act in a manner consistent with our domestic responsibilities. As my colleague Andrew Bailey said last week, our risk appetite for foreign branches will largely be determined by whether their activities in the UK are covered by credible recovery and resolution plans.15 As always, renewing globalisation and building resilience go hand in hand. 5. Conclusion  After perhaps the worst financial crisis in the FT’s long lifetime, it is reasonable to expect financial services will again grow in importance. The process of financial deepening in emerging markets is only beginning. In Europe, there is a strong case for greater reliance on robust financial markets relative to weakened banks. The UK stands to benefit because of London’s place at the heart of the global financial system.